Last Updated:July 07, 2025, 19:58 IST
Bad debts drain resources and good debts help you achieve your long-term goals and even create wealth.
Good debt helps you grow over time. (Pexels/Representative Image)
In the world of personal finance, the word “debt” often sparks anxiety and caution. It has a negative perception and is often seen as a financial burden; however, not all debt is harmful to you. There are two types of debts—good debt and bad debt. And financial experts are encouraging individuals to rethink the concept, highlighting the difference between ‘bad debts’ that drain resources and ‘good debts’ that help you achieve your long-term goals and even create wealth.
In this article, we will look into what good debt is, its examples, and why it is considered helpful.
What is a good debt?
Good debt is borrowing loans or other forms of credit that support financial growth or contribute to long-term goals. It is typically used to fund education or business ventures that can generate returns over time. Whether it’s buying a home, investing in a degree, or expanding a business, this kind of borrowing is tied to increasing your future income or asset value.
What separates good debt from its bad counterpart is both purpose and structure. Good debt is considered an investment, and it tends to come with affordable interest rates and manageable repayment terms.
Common Examples of Good Debt:
Education Loans
Taking student loans for higher education or professional development often translates into better job opportunities and increases your income. For example, an advanced degree like an MBA with the help of a loan can significantly raise one’s income bracket.
Home Loans
Real estate is traditionally viewed as a solid source of investment. With property values rising over time, a home loan can become a wealth-building asset.
Business Loans
Funding a business expansion with a loan can generate profits and sustain long-term growth, especially if the investment is well-planned. A business loan is definitely an example of good debt, as it ensures steady growth and competitiveness.
Personal Loans for Constructive Goals
Loans for home renovations or medical needs also qualify as good debt. These loans help improve your assets or cover important needs without putting excessive pressure on your finances.
Why Is It Considered Good?
Lower, reasonable interest rates
Potential tax benefits on interest payments (such as with home loans or education loans)
Positive impact on credit score if repaid on time
Long-term financial value or income generation
While good debt can be a smart financial tool, it is important to use it wisely. You must prioritise need over want and only borrow what you can truly afford. The most important thing is to understand the fees, interest, and costs of borrowing.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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