Good debt vs. bad debt

All debt has a cost (interest) and creates an obligation. But some debts can build wealth, while others actively destroy it. The simple framework: look at the interest rate and what the debt enabled you to acquire.

Generally 'better' debt

• Mortgage on your primary home — typically 6-7%, fixed, tax-advantaged in some cases, builds equity in an appreciating asset
• Federal student loans for a degree with a clear earnings path — typically 4-7%, with flexible repayment options
• Low-rate business loans for genuinely productive equipment or expansion

Generally 'worse' debt

• Credit card debt — 22-28% interest, usually for consumption that has already been used up
• Auto loans on luxury cars — depreciating asset, often financed for too long
• Buy-now-pay-later for impulse purchases
• Payday loans — annualized rates often above 300%

The rule of thumb

If the interest rate is higher than you can reasonably expect investments to return (say, 7-8%), pay it off aggressively before investing. If it's lower (3-4% mortgage), you're often better off investing the extra money instead of paying it down faster.