Good and Bad Debt: Metric or Myth?

Health professionals have long debated the idea that there’s such a thing as a “good calorie” or a “bad calorie” in terms of what you eat: the same may hold true for things like fats, cholesterol, grains and many other hotly contested nutritional items in the back-and-forth world of dietary health.

But what about your money diet? Do good and bad debt really exist? Or is this kind  of categorization potentially a danger to your financial health?

good and bad debt - do these distinctions exist?

Certain things have come to define good and bad in terms of debt. Bad debt is often defined as borrowing in order to purchase depreciating assets, or that which is financed by credit card payments that cannot be sustained month-to-month. Good debt is often categorized as that which goes toward mortgages or investments in your future such as student loans. However, these definitions are not 100 percent infallible. What if that mortgage payment suddenly becomes unpayable due to an unforeseen life event?The interest charges on such debts may be lower than those on credit card products or payday loans, but that does not change the fact that the line of credit is being used to live a little beyond one’s means. On the other side of the coin, only a relatively small number of Canadians carry credit card debt — as of August 2015, it made up just five per cent of our overall household debt, according to the Canadian Bankers Association.

In short, the popularization of the idea of good and bad debt is often characterized as one of want vs. need. However, the broad-reaching societal effects of increasing debt loads have become more and more evident since the credit crunch of the late 2000s. It’s time to rework our Atkins-diet understanding of debt into one in which is predicated on working toward a sustainable, low-debt lifestyle where necessary debt expenditures are built into sound financial plans that allow for their repayment, management and dissipation over time. Much like the calories you eat, it’s all about how much you do to work them off when compared to the amount you’re taking on.

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