Unpopular Opinion: There's No Such Thing as "Good Debt"
I heard a lot about “good debt” growing up.
When I was in high school, people said, “Don’t worry about student loans, that’s GOOD debt!” In college, it was, “You can just finance a car. If the interest rate is low enough, then that’s basically good debt.” And of course, the moment I graduated everyone said, “You need to buy a house as soon as possible. The sooner you get that mortgage the better.”
In fact, in the town I grew up in, I probably heard more about “good debt” than any other kind. Whether debt was good or bad almost didn’t matter- because it was ALWAYS justified. But that’s beside the point.
When I started school, I ultimately wound up going down tiny rabbit holes of a variety of different debt: student loans, an auto loan, and credit cards. And no matter how much people insisted that I didn’t need to rush to pay them off, their words never changed how I felt while I was in debt: trapped, nervous, and tired.
My stomach would churn every time I heard it. How can debt be “good”? How can me owing someone else be good? I would think this as I started my shifts at the café at 4 in the morning. Someone had taught me to think of money in terms of my hourly wage early, so I’d think, “Hmm I’m working 8 hours today. After tax, that means I’m putting this much towards my debt. So every time I get this much into debt, I’m forced to work this much more.” It didn’t seem very “good” to me. Useful? Yes, I’m glad I went to college! Manageable? I’m still okay, aren’t I? Necessary? In the case of my car- absolutely. But good? Hmm, that’s another story.
The big picture
It’s no surprise to me that two major financial crises have revolved around “good debt”: the mortgage crisis of 2008 and the student loan crisis that’s ongoing. It boggles my mind that people see the effects of these two disasters (and they ARE disasters) every day and still insist that mortgages and student loans are “good debt,” no matter what. Since these two liabilities are the two most common things people call “good debt,” let’s take a look at the facts:
First, the mortgage crisis of 2008:
The student loan crisis of the early 2000’s (ongoing):
Listen guys. BUSINESS 101.
Assets are good.
Liabilities are bad.
A HOUSE is usually an asset, a mortgage is a liability.
AN EDUCATION is an asset, student loans are a liability.
A CAR is an asset, an auto loan is a liability.
The two are not one and the same, and our financial picture becomes so much easier to understand once we distinguish between the two of them!
The problem is clear: MAYBE this debt is a good choice for you, MAYBE it’s not. It’s all in the nuance. Yet, when you say that ANY mortgage debt or student loan debt are automatically “good,” you discourage people from doing the due diligence that should go into any big financial decision. You eliminate the nuance that’s ESSENTIAL for the decision.
After all, if it’s an investment, why NOT get the biggest house you can qualify for? Why not spend an extra few years in school? It will pay off! Right? When people are told that some loans are “good debt,” then it makes sense for them to not only take on debt, but actually take on as much of it as possible. After all, it’s an “investment,” right? You can’t have too much of a good thing!
Will this debt...
- Help you save money in the long run?
- Help you earn more money in the long run?
- Hinder any other life goals?
- Have manageable terms?
Let’s rephrase the conversation. Just like I thought in college, debt can be useful, manageable, necessary, or even just “less bad,” but it can’t be “good.” Good debt is an oxymoron. Let’s make debt bad (or at least nuanced) again.