Good Debt vs. Bad Debt

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I have posted about debt.  I wrote about Why People Go Into Debt. I have written about Debt as Obligation.  But, I guess my posts have been general and some of you are looking for me to stand up and say exactly where I stand in regards to this whole debt thing.  What is good debt and what is bad debt?  So here goes …

Good Debt vs. Bad Debt

I’m not really sure there is such a thing as “good” debt.  There are some types of debt that are understandable and reasonable.  But, debt is rarely a good tool to achieve your financial goals.  It might help you achieve other goals, at least initially.

Personally, I would only include two types of loans as understandable and reasonable debt from a financial perspective:  home loan and school loan.  Even with the school loan I am making preparations so that my kids do not need to have school loans.  Many people would include a car loan, but cars depreciate so much and your interest is so high that it is so easy to get upside down on your payments.  Car loans might be understandable from a non-financial perspective, but they really disadvantage people financially.                  Photo by ooOJasonOoo’s

There are certainly bad forms of debt.  Bad debt includes: pay day loans, credit card debt, unsecured loans… Any type of debt that leaves you with nothing is a bad idea.

Taming the Money Monster Five Steps to Conquering Debt

In Taming the Money Monster Ron Blue outlines four tests when it comes to debt:  

Common Sense Test: Is your economic return greater than the economic cost?

A Guaranteed Way to Repay: How much are you presuming upon the future?

Peace of Heart and Mind: Does the borrowing leave you with peace in your heart and spirit?

Unity: Are both partners in agreement?

What a great list.  Here are my thoughts:

This list touches on so many of the elements in any discussion of debt.  The first touches on the calculator, logical, mathematical side.  The second touches on the Spiritual, character driven, and principle element.  The third and fourth touch on the emotional element.

Common Sense Test remarks: debt and personal finance is not about numbers.  If that were the case those with higher math scores would always have a higher net worth.  It needs to make mathematical sense, but that is only one component in the decision.

Guaranteed Way to Repay:  Here Blue suggests large down payments (like 50%) for a house.  This way you are not borrowing without a sure ability to repay.  The more you borrow, the more you are likely to be unable to repay.  Thus, the more likely you will be to be signing an assurance for something you really cannot assure.  As Christians, we ought to make every possible arrangement so we can make right on our commitments.

Peace of Heart and Mind:  This is the main trouble with most loans.  Initially they bring you the peace and joy you were seeking, but when life presents one small setback, your life turns into chaotic confusion.  Not having any debt payments always leads to more peace than having debt payments.

His Needs, Her Needs

Unity: In the book His Needs,Her Needs Dr. Harley suggests couples should only do things both are enthusiastic about.  While I have not fully accepted the suggestion, the premise is valuable.  If a marriage is to work towards unity both parties need to agree to the decision.  Unfortunately, money decisions are often made independently.  What if you implement a financial policy that you wouldn’t buy something or get a loan for something that your spouse is not enthusiastic about?  How difficult would that be?  How much do you think it would change your relationship?

So no, I am not a big fan of debt. I do not think it financially or emotionally works out to your advantage.  Furthermore, I find little Biblical support for using debt to obtain things.


  1. says

    Debt is similar to cholesterol some kinds of good and some are bad. In addition it’s also a fact that too much debt whether it is good debt or bad, it’s definitely affects the financial life. Therefore it’s better to maintain the limit of debts for healthy financial life.

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