Good debt vs bad debt

Training 415 minutesgood debt vs bad debt

You are 27, a mechanic earning $2,400 a month. The bank will approve almost any loan. The only question is which loans work for you and which work against you.

Training goal: Borrow only for things that pay you back

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Situation

1. Your old phone is smashed and you need a new one. A flagship costs $1,200, the store offers a 12-month loan at 28% a year.

Take the loan, a phone is a daily tool
Buy a $400 model with cash
Spread it over 24 months for a small payment

2. The garage owner offers you a $2,000 course in electric car diagnostics. After it, your pay rises by $500 a month, written into your contract.

Say no, studying on credit feels scary
Put all savings into it and save up the rest
Take a small loan at 12% and do the course

3. A friend invites you to the beach next month. Flights and hotel cost $1,800, your card limit is $2,000, and you have $1,100 saved.

Go on credit, rest matters too
Suggest a trip in 5 months and save $360 a month
Go simpler: a hostel and $700 of your own

4. You need a car for call-out jobs. A used one costs $6,000, a new one $22,000 on a 6-year loan.

The new one, it looks better to clients
The used one, part cash, part a short loan
Lease a new one with nothing down

What you will learn

Good debt grows your income or an asset. Bad debt pays for things that lose value.
Test any loan: will the purchase return more than the interest costs?
Even good debt should be cheap and short.

Your real-life step

List your debts and mark each one: does it grow your income or lose value? Start paying off the bad ones.

Questions and answers

What is good debt?

Debt for something that raises your income or value: education with a clear payoff, a tool for work, a home at a fair rate.

What counts as bad debt?

Borrowing for things that lose value: gadgets, holidays, clothes. Especially at a high rate.

Is a mortgage good debt?

Often yes, if the payment stays under about 30% of income, you have savings and plan to stay five years or more. A mortgage builds ownership, renting buys the freedom to move.

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Numbers are illustrative. A game, not financial advice.