Good Debt vs Bad Debt 


Good Debt vs Bad Debt : If you’re looking for, or already have a loan, you’re probably familiar with the concept of debt and the ways debt can help you achieve various goals. What you might not know is that not all debts are created equal, and some debts can be considered “good,” while others may be classified as “bad.”  

This can be confusing, so let’s take a look at what it means for good debt or bad debt. 

Good Debt 

Good debt refers to money borrowed for investments or purchases that have the potential to increase in value or generate long-term benefits. Good debt also allows you to claim tax benefits each year.  

Here are a few examples of good debts: 

Investment Properties 

Investing in income-generating properties, like residential or commercial rental properties, is usually considered good debt. The rental income or potential appreciation of the property can outweigh the borrowing costs and provide a steady income stream. 

Business Loans 

Borrowing money to start or expand a business can be a good use of debt. It can provide the necessary capital to invest in the business, purchase equipment, or hire employees. The goal is for the business to generate enough revenue to repay the loan and generate profits. 

Investment Loans 

Investing in assets such as stocks or bonds can be considered good debt if the potential returns exceed the cost of borrowing. This strategy, known as leveraging, can help grow your wealth over time. 

Bad Debt 

Bad debt, on the other hand, refers to borrowing money for purchases that do not have the potential to generate long-term benefits or income and should be paid off as quickly as possible.  

Here are a few examples of bad debts: 

Personal Mortgages 

Taking out a loan to purchase a house, commonly known as a mortgage, is one of the largest examples of bad debt. Now this doesn’t mean that no one should ever take out a mortgage, but it does mean that you should aim to pay it off as soon as possible. 

Credit Card Debt 

Accumulating credit card debt is often considered bad debt. High-interest rates and minimum payments can lead to a cycle of debt and financial stress. 

Personal Car Loans 

While owning a car may be necessary for transportation, taking out a loan to pay for the vehicle is generally considered bad debt. Opting for a more affordable car or saving up for a larger down payment can help minimise the impact of car loans. 

Differentiating between good and bad debt is essential when making informed financial decisions. While good debt can be an investment in your future or contribute to your financial growth, bad debt can hinder your financial progress and lead to unnecessary stress.  

You should always aim to pay off any bad debt that you have as quickly as you can, while simultaneously making the most out of the tax benefits from any good debts that you have. 

It’s important to assess your borrowing decisions carefully, consider the potential returns or benefits, and ensure that you can comfortably manage the debt repayments within your financial means. 

If you want to make the most out of your good debts and get rid of any bad debts quickly, be sure to speak to the team at Glass Financial! We will always give you the right information for your situation, allowing you to always make informed decisions. 

Speak with us today on 1300 245 277 or send us an email to [email protected] 

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