Debt Good – Or Debt Bad?

There is certainly an argument floated out there that supposes all debt is bad debt… but this is only true if you suppose this from the outset. Using another perspective, you can differentiate between the two types of debt. Determining whether or not a debt is good or bad in this way more often involves a deeper analysis of specific circumstances.

What Is ‘Bad Debt’?

If you are borrowing money to purchase goods that lose their valuation over a short/long period of time this is referred to as bad debt. Some of these goods include new cars, clothes, consumables and other goods and services.

Okay… but What on Earth is ‘Good Debt’?

There’s an old saying that goes something like – “it takes money to make money”. This saying may seem innocuous, but it can help us clarify the meaning of ‘good debt’. If the debt taken on helps to generate income and increase net worth, that can be considered positive.

Millions of Australians have decided that it is worthwhile to accrue debts to obtain real estate and become homeowners.

Residential real estate, in particular, is a prime example. In many cases, this asset is productive – income can be generated by taking in a border or renting out the entire estate.