For a lot of young adults, the word “debt” triggers stress. And to be fair, debt can be a big deal. You have probably heard horror stories about people overwhelmed by credit cards, student loans, or car payments they can’t afford.
But here is something important to know: debt itself is not the enemy. In fact, when used wisely, debt can be a tool that helps you move forward, toward your education, your first car, your home, or even building a strong credit history.
The key is understanding the difference between good debt and bad debt and knowing how to manage it responsibly.
What Is “Good Debt”?
Good debt is the kind that helps you invest in your future. It is usually tied to something that can grow in value or increase your earning potential. For example, student loans (used carefully) can be considered good debt when they help you get a degree or certification that leads to higher income or more opportunities.
Another example is a mortgage, which lets you buy a home, something that can grow in value over time. Even small business loans, if managed well, can be considered good debt because they help you build something that can generate income down the road.
Good debt is about using borrowed money to improve your life in ways that will pay off over time. But even “good” debt needs to be taken on carefully and with a plan.
What Makes Debt “Bad”?
Bad debt, on the other hand, usually comes from borrowing money to buy things that lose value quickly or that do not provide long-term benefit. This often includes credit card debt, high-interest personal loans, or buying things on impulse that you cannot actually afford, like expensive clothes, electronics, or trips that go straight onto your credit card with no plan to pay them off.
The danger with bad debt is that it can pile up quickly, especially with high interest rates. You could end up paying way more than the original purchase, just in interest and fees. That is how small balances can turn into big financial stress.
Credit Cards: Powerful—but Risky Without a Plan
Credit cards can be a useful tool, but only if you use them right. They can help you build credit, earn rewards, and give you flexibility in emergencies. But they also come with risks.
Here is how to use a credit card wisely:
- Only charge what you know you can pay off in full each month.
- Avoid carrying a balance; interest adds up fast.
- Set up autopay or reminders to never miss a payment.
- Start with just one card and keep your credit limit manageable.
Building a strong credit history early on is helpful for renting an apartment, qualifying for lower insurance rates, or getting approved for a loan in the future. But that only works if you use credit responsibly.
Borrowing Is Not Always Bad—But It Should Always Be Thoughtful
If you are considering taking on debt, whether for school, a car, or a purchase you’ve been saving for, ask yourself a few questions first:
- Is this something I truly need or value?
- Will it help me in the long run?
- Do I understand the total cost, including interest?
- Do I have a realistic plan to pay it back?
Being thoughtful about debt does not mean you avoid it forever. It means you approach it with your eyes open, your goals in mind, and a clear sense of what you’re getting into.
This Month’s Question:
What do you think about borrowing money?
Talk to someone in your life about how they have used debt, for better or worse. You might learn what to do (or what not to do) based on their experience.
Challenge for the Month
- If you already have a credit card, review your last three months of charges. Are you staying within your means?
- If you do not have one yet, start researching options with low interest rates and no annual fees.
- Talk with someone you trust about how they managed (or struggled with) student loans, car payments, or credit card debt when they were your age.
- Write down your own “credit rules” for the future, what you will and won’t borrow for, and how you’ll stay in control.