There’s no such thing as Good Debt & Bad Debt
You’ve probably heard it before—”good debt builds wealth, bad debt ruins lives.” But let’s be real—debt is debt. The idea that some debt is good and some is bad is just a fancy way of justifying borrowing money. At the end of the day, all debt is a liability, and it always comes with strings attached. Whether you’re taking on student loans, a mortgage, or racking up credit card debt, it’s still money you owe that limits your financial freedom. Banks and financial institutions push the “good debt” narrative because they profit from it, but the reality is that any money borrowed comes with risks, interest, and obligations that tie up your future earnings. Instead of trying to categorize debt, it’s more important to focus on minimizing it and ensuring it doesn’t control your life.
The “Good Debt vs. Bad Debt” Idea
- All Debt Costs You Money – No matter what kind of debt it is, you’re paying interest to someone else. That’s money that could be working for you instead. For example, people often think student loans are “good debt” because they help secure a degree, but if the job market is unstable or salaries in the chosen field are low, those loans can become a huge financial burden rather than an asset.
- Debt is Still a Financial Obligation – Whether it’s a student loan, a mortgage, or a credit card balance, debt still ties up your future income. Mortgages are often labeled as “good debt” because homes typically appreciate in value. The sad reality is that this assumption isn’t always true—many people have run into situations where their home values dropped crucially, leaving them owing more than their house was worth, also known as being “underwater” on their mortgage. This happened during the 2008 financial crisis, proving that even so-called good debt carries serious risks.
- Risk is Always Involved – Taking on debt is always a gamble. Jobs aren’t guaranteed, economies crash, and life throws curveballs. Borrowing money assumes that you will always be able to pay it back, but unexpected life events like layoffs, medical emergencies, or economic downturns can quickly turn “manageable” debt into an overwhelming financial nightmare. High-interest debts like credit cards or payday loans are obvious financial traps, but even low-interest debts like business loans or auto loans can become problems if circumstances change.
So, you are probably asking yourself, “But what should I do instead?” Great question!
Focus on Living Debt-Free
The ultimate financial freedom comes when you owe nothing to anyone. Being debt-free means your income is entirely yours to control, rather than being tied up in monthly payments and interest charges. Living debt-free provides peace of mind and allows you to focus on saving, investing, and building wealth without the stress of looming obligations. Yup, debt-free = financial freedom = peace of mind!
Pay Off Debt Quickly
The longer you hold onto debt, the more money you lose in interest. Even low-interest loans accumulate costs over time, reducing your ability to save and invest. Prioritize paying off debt aggressively by using strategies like the debt snowball method (paying off the smallest balances first) or the debt avalanche method (focusing on high-interest debts first). Paying off debt sooner rather than later also improves your credit score and overall financial stability.
Think Before You Borrow
Instead of assuming that some debts are “good,” challenge yourself to explore alternatives. Before taking on any loan, ask yourself: Is there a better way to afford what I need? Could I save up first? Could I opt for a less expensive option? Many people justify borrowing for major purchases, like cars or homes, without considering the long-term financial burden. Avoiding unnecessary debt ensures that you’re making financial decisions from a position of strength rather than necessity.
Build an Emergency Fund
One of the biggest reasons people go into debt is because they don’t have money set aside for unexpected expenses. A solid emergency fund (typically 3-6 months’ worth of expenses) can help you avoid resorting to credit cards or loans when life throws financial surprises your way. This fund serves as a financial cushion and prevents you from spiraling into unnecessary debt.
Redefine Your Relationship with Money
Instead of funneling money into interest payments, redirect those funds into investments,
retirement savings, or income-generating opportunities. The sooner you start investing, the more you take advantage of compound growth, which helps you build wealth over time. Debt takes money away from your future—investing secures it.
Invest in Your Future
Financial success isn’t about finding ways to manage debt; it’s about avoiding it in the first place. Shift your mindset from “I can afford the monthly payment” to “I can afford to pay in full.” The less you rely on borrowed money, the more control you have over your financial future.
SO, GOOD DEBT? Think again! The idea of “good debt” is often just a marketing ploy. No debt is truly “good” because it always comes with a cost. No matter what kind, it comes with risks, obligations, and costs that can hold you back financially. Instead of justifying debt, work towards eliminating it. Financial independence is about living on your terms—not the bank’s.
About the Author
Yara N. Ortiz is the Owner & CEO of BCS: Exclusively Serving Nonprofit Organizations, a firm dedicated to providing financial management and consulting services to nonprofits. In addition to supporting organizations, BCS also specializes in personal financial planning, offering strategic budgeting solutions to help individuals take control of their finances.
With extensive experience in financial management, Yara is deeply passionate about empowering both nonprofits and individuals to achieve their missions and financial goals through strategic financial practices, transparency, and long-term sustainability.
For more information on how BCS can assist your nonprofit in managing restricted and unrestricted funds, feel free to contact us. Let’s work together to ensure your organization’s financial health and success.
