Being “in debt” is often demonised, but you should distinguish between bad debt, which holds you back from achieving your goals, and good debt, which provides you with capital to build your business or career.

What exactly do I mean by “good” debt and “bad” debt? Easy. Bad debt buys you a fungible good or service. Good debt buys an asset, in the broadest sense of “a commodity that returns value to you”. Investment debt makes up most “good debt”. Let’s look at the most common forms of investment debt.

Learning = earning

Education has long been linked to success. Although it usually requires initial borrowing, the more education you have, the greater the your earning potential. Education also correlates with finding fulfilling work. With higher qualifications, you’re more likely to be employed in a well-paying job, and have an easier time finding new job opportunities. An investment in a professional qualification or university degree will pay off within a few years. Over a career, workers with degrees rack up a 15 % return on investment  – which comes to hundreds of thousands of dollars.

Grow your business, grow your money

Earning income is the primary benefit of entrepreneurship; being your own boss is a bonus. Not only do you avoid relying someone to hire you and pay you, but (unlike employees) your earnings potential is directly improved by your hard work. With luck, even if your business begins as a side business while you continue your career, you can turn your drive and ambition into a self-sustaining enterprise. Borrowing moderate amounts to start or sustain a growing business can be good debt.

Your home is your castle

A (reasonable!) mortgage is usually “good debt”. Research will often uncover incentive schemes for first time buyers, and there is no capital gains tax to pay on your asset’s appreciation. Therefore, the simplest strategy often involves buying a house, living in it, then selling it for a profit. If things go wrong, some or all of the property can be rented out to generate income or cover the repayments, which lowers your risk further still.

Finally, if you would have to pay rent anyway, your mortgage payments will probably be probably similar, and will generate future wealth – win/win!

Speculate to accumulate!

You should have different risk appetites for investments at different life stages. However,
short-term investing provides an opportunity to generate income, but long-term investing may be the best opportunity most people have to generate wealth. In both cases borrowing (cheaply) in order to invest may count as good debt (this is not financial advice!). Of course, with this strategy before you consider it, you should go and see a financial advisor who is qualified to give you advice on these kinds of investments.

Buy precious, precious time

The final form of “good debt” isn’t really debt at all. It’s simply swapping something fungible (money) for something non-fungible (time). You have the choice of how to “invest” the time gained, depending on the type of “return” you want: using a budget planner to nail your financial goals, building your business, spending time with loved ones, or exercising to maintain health and fitness (investing in the only body you’ll ever have – your scarcest physical asset).

Call Bill Butler now to discuss how much time we can save you!

This blog is the first part of our debt is good series – make sure to check out our next blog – the types of lending next week.


Jay began his career in London with Rabobank, CLS bank and a Lloyd’s of London syndicate. Jay’s work has spanned corporate communications, content editing, newspaper articles, courseware, blogging, policy drafting, technical writing, and a regular crossword. He is passionate about 8-bit tunes, self-improvement, and the Oxford comma.