All Debt is Bad
I’ve heard several financial gurus claim there is a distinction between ‘good’ and ‘bad’ debt. Examples of good debt include the mortgage on an investment property and business loans, while bad debt includes high-interest consumer loans (including credit card debt). Good debt is used to purchase assets (e.g., businesses, stocks, rent houses) that provide income, while bad debt is used to purchase liabilities (e.g., cars, boats, houses) for consumption.
All debt must be repaid. You don’t get to separate your ‘good’ debt from ‘bad’ debt in front of a bankruptcy judge. A debt is a debt in the eyes of the law. It must be paid back — with interest — or there are severe repercussions for the borrower.
If you are in debt, pay it off as soon as humanly possible without taking on any further debt. Taking on debt to purchase an investment property or a business can make sense — if you are business savvy and know what you are doing. Otherwise, tread carefully and remember there is no good or bad debt — only debt.