"All debt is evil." You hear this a lot from financial gurus. "Debt is how you get rich." You hear this from real estate influencers.
Who is right? Neither. And both.
In my 33 years, I've learned that debt is like a chainsaw.
- In the hands of a skilled operator, a chainsaw can clear a forest and build a cabin (build wealth).
- In the hands of a child, it will cut your leg off (destroy wealth).
Good Debt vs. Bad Debt
- The Good (Leverage): This is debt on an asset that appreciates or generates income. A mortgage on a rental property that pays for itself? That’s a tool. A loan to expand a profitable business? That’s fuel.
- The Bad (Consumer): This is debt on things that lose value or disappear. Credit card debt for a vacation? That’s a disaster. Financing a luxury car you can’t afford? That’s an anchor.
The Danger Zone The problem is when people use "leverage" logic to justify "consumer" habits. “Oh, I’ll finance this boat because rates are low and I can keep my cash invested.” Stop it. Unless you have the discipline of a monk, that math rarely works out in real life.
If you are losing sleep over it, pay it off. The "mathematical" return on paying off debt might be 6%, but the "emotional" return of being debt-free? That is priceless.