"Good debt" helps you build something worth more than it costs: a degree that lifts your income, a business that earns, a home you'd otherwise rent. "Bad debt" pays for things that lose value the moment you buy them. But the label matters less than two numbers: the interest rate and the repayment period.
The same $10,000, four very different price tags
| Loan | Monthly payment | Total interest paid |
|---|---|---|
| 6% over 3 years | $304 | $952 |
| 6% over 10 years | $111 | $3,322 |
| 24% over 3 years | $392 | $4,124 |
| 24% over 5 years | $288 | $7,261 |
Illustrative figures for a fixed-rate loan with monthly repayments.
Two lessons jump out. First, the rate is everything: at 24%, a typical credit-card or buy-now-pay-later-style rate, you can pay more than seven times as much interest as at 6%. Second, a longer term feels cheaper each month but costs more overall. Stretching that 6% loan from 3 to 10 years drops the payment by $193 a month, but triples the interest.
And the sneakiest debt of all? A $5,000 credit-card balance at 24%, paying only a 3% minimum each month, takes nearly 20 years to clear and costs around $8,900 in interest.
The good-debt test
Before you sign, ask:
- Will this grow my worth or my income? If not, it's a want, not an investment.
- Is the rate lower than what it helps me earn? A course that raises your salary 15% can justify a 6% loan. A holiday at 24% can't.
- Can I afford the payment on a bad month? Keep total repayments under about a third of your take-home pay.
- What's the shortest term I can comfortably handle? Shorter usually means far less interest.
If you already have debt
List every balance with its rate. Pay the minimum on all of them, then throw every extra dollar at the highest rate first. Ask Bixie AI to map your payoff date and see how much you save by paying a little more each month.
Debt isn't good or bad. It's a tool. Make sure it's working for you, not the other way round.
