The right debt, used correctly, builds wealth faster than saving alone.
Good Debt vs Bad Debt
- Good debt — Borrowed money used to acquire an asset that generates more return than the interest cost.
- Bad debt — Borrowed money used to buy things that depreciate or consume.
The Formula
If the return on what you buy with debt exceeds the interest rate you pay — it is potentially good debt. If the return is lower than the interest rate — it is definitely bad debt.
The Rules
- Never borrow to fund a lifestyle. Only borrow to fund an asset.
- Always model the worst case. What if the asset underperforms?
- Keep total debt payments below 35% of your income.
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⚡ Your Action Step
What is one thing from this article you can act on today? Write it down. Then do it. Wealth is built one decision at a time.
