September 10, 2023

Good Debt: is There Such a Thing?


After spending well over our travel budget this year for the train trip to Portland and the just-completed trip to France, this topic is on my mind.

Debt is powerful. In our culture, it is a fact of life. A study in the Wall Street Journal showed that 32% of all households with someone 65-74 years old is carrying credit card debt, while 41% have a housing debt. In fact, the median value of that mortgage debt is just under $70,000. 

We are familiar with bad debt: that is debt that drains our resources and puts a stable financial situation at risk. Examples? Credit card debt that rolls over month-to-month. Some of the most expensive debt one can accumulate, using these cards as open lines of credit, has landed many people in serious hot water. 

The latest figures show an average household credit card debt of over $7,000. Interestingly, a few years before the Covid shutdown, that figure was $15,000. Maybe all of us staying home had at least one positive effect: less spending. Regardless, paying 21% interest is not sustainable.,

Taking out a mortgage that is too big for you to comfortably handle or using your home's equity to pay for things like vacations, new cars, or a room full of furniture can put the place you live at risk. We seem to be coming out of a period of housing price retrenchment; the cost to live under a roof is rising again. Apartment rents are keeping pace, with many unable to live where and how they prefer.

Bad debt is easy to understand.

So, is there ever such a thing as good debt? Yes, I think there is. Consider these situations:

1) Buying a house. Based on what I just wrote above, how can this be?  If equity buildup isn't treated like a piggy bank, we usually plan on staying in a home for several years. 

If it provides a safe and pleasant environment, one you can shape to bring you joy and security, then a mortgage is good debt if the monthly payments won't stretch the budget too far. 

Certainly, this may be less of a dream today than it once was. Still, owning one's own home, condo, or apartment  remains the goal of many

2) Financing post-high school education. Student loan debt averages over $38,000. Unfortunately, it has become clear that a solid education is a requirement for an increased chance of success in today's world. 

Is the dream of an Ivy League or top-tier school necessary for that education? For most young people (and their parents), a state university, community college, or well-respected technical school will accomplish the goal of becoming a valuable employee for someone. 

As long as the level of student debt isn't too far out of line with the expected return on the educational investment, debt for some form of advanced education is good debt.

For retirees who find they want to go back to school to complete an unfinished degree, learn a new skill, or train for a new job, student debt can be good because it allows you to fulfill a long-delayed dream.

3)  Covering unexpected medical costs. Even a few days in a hospital for an emergency or simple operation can cost tens of thousands of dollars. What insurance doesn't cover, you must. 

Borrowing money to help yourself or someone you love in such a situation is a type of debt most of us would take on in a heartbeat (pun intended). 

Human life is more important than debt. This is a good debt because it considers human life to be priceless.

In these instances, borrowed money is used to pay for something that is likely to appreciate in value over time or increase your income. Bad debt often is used to purchase something that does depreciate or has no value once it is over. Vacations or a new TV are not bad; After being in France,  I should probably eat Mac and Cheese for a while. That's OK. I will make some sacrifices to help balance the budget again. 

Bad debt or good debt? Debt is really neutral. It is how you use it, what risks you take to acquire and maintain it, and what your ultimate plans for that debt are.


  1. As I post this I am sitting at the airport in Paris waiting to board our flight home. This trip has cost $1,500 more than planned due to some unforseen problems, but, being a very special time, this was an investment in our happiness.

  2. Glad you’re back, Bob. Interestingly, I read this article about medical debt’s horrible aftermath immediately after reading your post.

    1. Thanks, Don. I am ready to be home! I will take a look at the article. Medical debt is a horrible burden for too many.

  3. Personally, ANY debt after 60 is not good unless you have a substantial SS check or savings to pay it all off in a whim.
    It is a new world now that I reached SS age.
    I have a friend who is living in a room of a garage while she rents out her modest house. Someone convinced her that she should invest in annuity( begins ant 70) and take a mortgage at 62! She is working as a cook’s mate at 67. I have another friend who lost her house when her husband died. Without his SS check, she could not afford it.These are solidly middle class people, who believed there is good debt.
    That you went over $1500 on a bill you can really afford to pay off is not really debt.IMHO.

    1. You are correct, it is not a debt. We normally stick with our budget so this was a good debt (expense) that will be paid off when the credit car statement arrives.

      The stories you share are powerful reminders that the time we have to fix or dig out from financial holes is not very long.

  4. I do not see any debt as being good, some are just less bad.

    A home can be sold, and tends to appreciate. Thus, it is generally perceived as an acceptable form of debt.

    A student loan is a different animal IMHO. If tuition can not be paid in full by the parent(s) at the time the student is setting off to college, then it's a no-go IMO. There are other ways to get a four year degree, starting with remaining at home and attending an inexpensive junior college for the first two years. After that, it should be up to the young person just starting out, not the parents careening toward retirement.Very few jobs are dependent on a degree being from a specific university, so if money is tight, the local state school would seem to be a great option. These both are the precise tracks I followed, and it paid off big time.

    Most medical bills would seem to be resolved by carrying insurance, so this one confuses me. If there really are cases where insurance is inadequate, then I guess would place it in the category of necessary debt, but certainly not 'good.'

    - Tamara R

    1. Before Medicare starts and after if supplental and drug coverage aren't affordable, medical debt would seem to be a real possibility for too many. I agree that type of debt is necessary, but still it can be devestating.

  5. Being debt free at age 49, I don't perceive good debt (and we had so much in 1986 we were on the precipice of bankruptcy but got stubborn and dug out). Like Tamara, there is debt that is 'less bad'. Less bad for us? We financed hubsters last vehicle purchase at 3.24% rather than writing a check from an account that continues to have 5% + interest return. At the time it was over 9%. Any given moment however, we can pay off the balance. This debt produces more income than expense even though I dislike owing money to anyone it does make financial sense.

    The numbers in our country for age, savings, debt are frightening and rampant consumerism and "Jonesing" perpetuates it. I admire my nephew who took a Ramsey class at age 18 and again at 22. He designed the engagement ring for his love, made monthly payments and did not pick it up until it was paid for. They didn't charge him interest as they were in possession of the piece. Only then did he propose. He taught his bride the same principles of money management he learned and for the first time in 2021, she saved $ for the camera she dreamed of using. She was so proud of herself. It will be fun to watch them through the coming decades and hear their stories.

    I do think healthcare is the biggest concern for many as the current data shows that retirees will spend nearly $250k by the time we die.

    1. And that quarter of a million is for premiums for Medicare, supplemental, and drug costs that are rarely covered 100%. If Medicare does not cover something due to various reasons, that $250,000 could easily be surpassed.

  6. I think a necessay debt vs an unnecessary one might be semantically better. Your point about debt used to support an unsusttainable lifestyle is really the point of the post.

    Thamks, David.

  7. Meant to say "Debt for consumption is generally though of as bad debt". How "good debt" slipped in there is a mystery;)

  8. I don’t view debt of any sort including mortgages as good after age 65, but I do know several instances where Medicare did not provide enough payment and there were significant debts after hospitalizations. After having said that I know several seniors who never recovered from the Great Recession’s job loss and they still have a mortgage and I understand that. No one size fits all. Cindy in the South

    1. Each financial story is unique since the person behind the numbers is also one of a kind. Each of us must calculate our own ability to handle any risk and the payback of an expense.

      But as you note, there are forces at work that can put any one of us off track and in a pickle.