Good Debt vs. Bad Debt

To manage your finances wisely, it’s crucial to understand the difference between:

  • Good Debt: Investments that can build wealth over time (e.g., student loans, business loans)
  • Bad Debt: Spending on items that lose value, especially with high interest rates (e.g., excessive credit card use)

Debt as a Financial Tool: Understanding When It’s Good vs. Bad

Debt can be a powerful tool for building wealth, but it’s essential to use it wisely. Debt can be beneficial, but it carries risks. Understand how “good debt” can turn bad.

Debts can remain “good” only if you are able to meet the payments. According to Equifax, your payment history is the largest factor that influences your credit score—accounting for about 35 percent of your score. Keeping up with your payments can help you raise your credit score over time, but missing them will lower your score. This means you need to make intelligent decisions about how much and what kind of debt you can take on.

Unfortunately, debts that start out as good can sometimes turn out bad. Educational loans don’t guarantee a successful career, and large ones can be difficult to pay back. Housing markets can crash and mortgages can go underwater, leaving you owing more on your house than it is worth. Businesses can fail or go bankrupt.

What is bad debt?

Bad debt is any debt you take on to fund a lifestyle you can’t afford; debt that causes you to overextend yourself or fall behind on your payments; debt that you take on to buy something that goes down in value; and debt that causes you to sacrifice long-term financial health for short-term gratification.

Bad debt often arises from buying items using high-interest credit cards and not paying the balance in full. A soon as you buy consumable items such as clothes or food, they immediately decrease in value. By purchasing them on credit and only making a partial payment on your credit account, the amount you are paying for these items continues to increase and you keep building more bad debt.

Equifax points out that debt that uses up too much of your available credit can also be considered bad debt. If you carry a balance of more than 30 percent of your credit limit, lenders may consider it excessive debt and view you less favorably.

How to Turn Bad Debt Into Good

If you’ve been racking up bad debt, you need to get your credit accounts under control and to improve your creditworthiness.  You can help do this by:

  • minimizing the amount of new debt by using current credit responsibly and only charging what you can pay off readily
  • paying off your current debt gradually over time
  • applying for new credit only when necessary
  • creating a budget to pay down your debt and sticking to it.

Contact Us

Even the most responsible efforts to control debt can sometimes go wrong, and people can be hit by unforeseen circumstances such as medical or divorce expenses that become overwhelming. There are times you need a helping hand and may need to consider bankruptcy as a way to get relief from debts and get a fresh financial start.

The experienced and compassionate Ohio debt relief attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your entire financial situation. We will examine your income, your debts and your goals and we will discuss the best fit for you.  We will make sure you are aware of all your options and help you decide on the path to a brighter future that makes sense in your individual case.  We understand what you are going through and will handle every phase of the process, including getting creditors to stop attempting to collect on unpaid bills.

Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today!  Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.

Attorney Tom Fesenmyer

Attorney Thomas M. Fesenmyer (Tom) is dedicated to helping his clients solve their financial issues in a timely and cost-effective manner. Tom has personally filed several thousand cases and has the expertise to achieve immediate results for his clients, including stopping Foreclosures, Repossessions, Wage Garnishments, Law Suits, Utility Shut-offs, Creditor Harassment, Bank Attachments, and Pay-Day Loans. Tom’s goal for all of his clients is asset protection and debt elimination.[ Attorney Bio ]



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