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Good Debt vs Bad Debt

There is an age old saying that goes "it takes money to make money." Debt, by definition, is basically the process of one party borrowing money from another party. You can live debt free, but very few people earn enough money to pay cash for important purchases, such as a home, a car, and a higher education. We borrow money to pay for goods or services now, with the promise and expectation of repayment in a set time in the future, when we have the money to do so. From this view, all debt is the same: we take now and repay back in the future. However, debt is a complex topic; not all of it is good, but not all of it is bad either. Typically, good debt and bad debt point to the positive and negative consequences of debt. Differentiating between good debt and bad debt is an essential consideration when buying on credit or taking out a loan. What is the difference between good debt and bad debt, and how can this help or hurt you? Contacting your local Orange County debt relief lawyer can assist you in navigating all types of debt by bring you the debt relief you deserve.

Good debt refers to the type of debt that can help you in generating income and increase your net worth; it is basically an investment debt that creates value. A few examples of good debt include mortgage, school loan, real estate loan, investing, and small business ownership.

Good debt can have negative aspects to it when the following occurs:

  • Monthly debt payments taking up more than approximately 36 percent of your gross monthly income; this includes mortgages and credit cards.
  • Carrying too much debt into your retirement years, when income is typically reduced.
  • Having too much secured debt that puts your assets into jeopardy.
  • Not taking advantage of many tax breaks on mortgage or home equity loan or line of credit.

Even though good debt can have some negative aspects, some debts are completely negative. The downside of debt is known as bad debt. Bad debt comes into play when referring to the purchase of disposable items or durable goods using high interest credit cards and not paying the full balance on them. Each month you make a partial payment on your credit account, you are charged interest. With a good debt, the service or good you are paying for continues to maintain or grow in value; in a bad debt, the item you purchased continues to lose value while the amount you pay on it continues to grow. Some items particularly related to bad debt include: vehicles, clothes, consumables, and other services, and credit cards.

There are some debts that are in a gray area between good debt and bad debt. Some of these debts include consolidation loans, borrowing to invest, and credit card rewards programs. While these can be good for consumers who are seeking debt relief, they also have the high potential of creating more debt. Your local Orange County debt settlement attorneys can work towards helping you take the best course of action when it comes to receiving the debt relief you deserve.



While the concept of good debt and bad debt is simple enough to understand, settling debts can be a complicated process. Looking for a local debt Orange County debt settlement lawyer can be difficult because many national companies have advertising campaigns attempting to reach our residents, and even appear as being located in our region. With Ben Ari & Nyugen Attorneys and Counselors, our local Orange County debt relief lawyers maintain offices and operations here so you can meet with a debt counselor to create a progressive, effective debt relief plan customized for your unique circumstances.



We at Ben Ari & Nyugen Attorneys and Counselors believe that you should not have to choose between paying your bills and supporting your family. By representing both individuals and business, we are your premier Orange County bankruptcy and debt relief attorneys dedicated in helping you free yourself from debt. Our experienced bankruptcy attorneys are dedicated in helping you find the right debt relief solution. With us, you won't face debt settlement alone. Connect with Ben Ari & Nyugen Attorneys and Counselors with a free consultation to discuss your bankruptcy concerns today.