There really are two sides to debt. In general debt is typically bad, but on the flip side, there is good debt. What is good debt? Good debt is money you borrow to pay for something that will increase in value and/or will pay you back after you make the purchase. An example of debt that’s good would be debt that pays for furthering your education, provided that the education produces income.

Another example, such as financing an investment property, is usually considered good debt as long as the rent payments are greater than all the expenses incurred and it can be sold for more than the purchase price. As I hope you’re beginning to realize just from these couple of examples, is that debt is not always bad in certain circumstances if managed properly.

“Not all debt is bad. From time to time we should get into debt when there’s a good reason for that.” – Dan Ariely

Even financing a car can be considered good debt if its use will generate income greater than the expenses, as in a taxi or shuttle service. On that same note, borrowing money to start a business can also be considered good debt, providing the business at some point generates income to re-pay the debt and produce an income.

As you can see, there is a difference between good debt and bad debt. Hopefully you understand the fine line that is between them in certain circumstances. The thing with good debt is that it has the potential at any point of becoming bad debt. But don’t be discouraged, because it’s that understanding that will improve your financial well-being and get you on the road to creating wealth. 

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