Good debt vs. bad debt

High-interest debt that buys consumption, especially credit cards, is the balance to clear first. Lower-rate debt that buys a house or an education can be reasonable if the payment fits and you are still saving. “Good” does not mean free.

Arc · Published September 18, 2026 · Updated September 18, 2026

A practical sort

Clear first: double-digit consumer debt.
Keep on a schedule: a mortgage or student loan you can afford while saving.
Avoid borrowing to invest. The spread is not worth a margin call or a lifestyle you cannot cut.

How much debt is too much

If minimum payments plus essentials consume the paycheck, the savings rate is not a strategy problem. It is a cash-flow problem. Net worth can look fine on a house and still be fragile if a job loss stops the payments.

Common questions

Is a car loan bad debt?

It is consumer debt at whatever rate the contract says. A low rate on a car you need is different from a long loan on a car that consumed the savings rate. Read the rate and the payment, not the category name.