"Debt" is a scary word, but wealthy people use debt as a tool to get richer. The key is knowing the difference between a liability that drains you and leverage that builds you up.
Pay Off Bad Debt Fast
Use our Snowball Calculator to crush high-interest loans.
What is "Good Debt"?
Good debt is money you borrow to buy an asset that increases in value or generates income. It puts money in your pocket eventually.
- Mortgages: Real estate tends to appreciate over time.
- Student Loans: Education can increase your lifetime earning potential (if the degree has ROI).
- Business Loans: Capital to grow a profitable business.
What is "Bad Debt"?
Bad debt is money borrowed to buy things that lose value (depreciate) or vanish immediately. It takes money out of your pocket.
- Credit Cards (High Interest): Paying 20%+ interest on dinner or clothes is wealth destruction.
- Car Loans (Expensive): Cars lose value the moment you drive them off the lot.
- Payday Loans: These are predatory and keep you in a cycle of poverty.
The Rule of Thumb
If the interest rate on the debt is higher than what you could earn by investing (e.g., >7%), pay it off immediately. If it's low (e.g., <4%), you might be better off investing the difference.