What makes debt 'good'?
Lesson 1 of 11 in our free Good Debt vs Bad Debt guide: a 5-minute money game with the key points below.
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The story so far
Dex: There's no bad debt, bro. Only bad vibes. I financed my trainers over 24 months. Investment piece.
Mo: I put a takeaway on a card in March. Is it good debt if the food was good?
Nana: Debt isn't good or bad because of how it feels. It's three questions: what does it buy, can you afford the repayments if life goes wrong, and what does it cost in total?
Chip: Good debt tends to buy something that grows in value or raises your income. Bad debt buys stuff that's gone before the bill is.
Nana: Ask the three questions every time. If the answers wobble, the debt's not good, love, however nice the trainers are.
Questions you'll answer
Which question matters MOST before taking on any debt?
Will the monthly payment still fit if my income drops for a while?. That's the affordability test. Good debt that you can't repay in a bad month stops being good.
Quick facts
- A repayment mortgage on a home you can afford, with a deposit → Leans good. It buys a home you'd otherwise pay rent for, and each payment chips away at the loan. Prices can still fall.
- A holiday on a credit card you'll pay off at the minimum → Leans bad. The holiday lasts a week; the interest can last years.
- A small loan for a van that lets a plumber take on more jobs → Leans good. It's an income-producing asset, if the jobs are really there.
- Buy now, pay later for a fifth pair of trainers → Leans bad. It's still debt, it's for a want, and plans stack up fast.
- Borrowing to pay for a course that leads to a better-paid trade → Leans good. It can raise income, if the course is genuine and leads to real work.
- A loan to put money into a coin a stranger hyped → Leans bad. Borrowing to speculate means losses plus interest. Worst of both.
- Fact: “Even 'good' debt can go bad if you borrow more than you can repay.” — A too-big mortgage or business loan is a real risk. Affordability comes first.
- Myth: “Debt that buys something you enjoy is automatically good debt.” — Enjoyment isn't the test. Does it grow in value or raise income, and can you afford it?
- Fact: “The total cost of a loan can be much more than the price of the thing you bought.” — Interest and fees add up, especially over long terms.