GirlsGuideTo | Day 9: Debt: Understanding Good v. Bad Debt

Believe it or not, there is BOTH good and BAD debt. You generally don’t want debt, but not all debt is equal.

Learn:

Good debt is the money you borrow to pay for something you expect to increase in value over time. If you buy a house at one price and sell it later for a higher price, then the profit you make should justify (and be more than) the interest you paid on the loan. School loans are also good debt because higher degrees are an investment in your future earning potential. As a result, good debt includes mortgages and school loans.

Bad debt is, well, everything else. Anything that doesn’t increase in value after you buy it: We don’t care how much you wanted that last minute vacation with your best friend: Credit card debt is bad. Even car loans are bad debt, too, because the car loses value the second it leaves the lot. At all times, you want to limit bad debt as MUCH as possible. We want it to be ZERO. This includes credit card loans, car loans, etc.

Make a list of every bit of debt you have.
Action Time: 1 minute

Write down how much you owe for each loan.
Action Time: 3 minutes

For each item, note whether you expect the item to increase in value over time.
Action Time: 1 minute

For those that will increase, write “good debt.” For everything else, write “bad debt.”
Action Time: 1 minute

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