“Necessary debt” is a better way to describe things like student loans.

I used to categorize my education loan as a bad debt because of the effect it has on my net worth. but come to think of it, when the borrower doesn’t punish you for minimum payments and the loan itself is a fixed interest over 20 years, it has to be a good debt.

why? 20 years down the road, i owe them what i signed on the dotted line plus the interest. and inflation doesn’t affect this loan.

is it considered as a good debt? i think it is.

good post!

Good debt is debt incurred for the purchase of goods which either appreciate in value over the life of the debt, or else provide ongoing operating value in excess of the cost of servicing the debt. (Mortgages on a primary residence win both ways, since houses almost always go up in value over the life of a mortgage, and the cost of renting an equivalent property would usually be higher than the cost of the mortgage payments. Mortgages on a secondary house are only good debt if the value of the house can be expected to rise. Car loans, on the other hand, are only good debt if they meet the utility criterion.)

Bad debt is all other kinds, whether the purchase was “necessary” or not. (Note that by this definition, using a credit card to buy something can only become bad debt when one fails to pay off the card on time, regardless of how “unnecessary” or even “frivolous” the purchase may be. It’s still technically debt, but as long as you retire it within your creditor’s grace period, it’s _free_ debt, and hence any utility at all derived from the purchases made with it will push it into the realm of Good debt.)