Good Debt vs Bad Debt: How to Take Control of Borrowing and Build Wealth

Debt has always divided opinions.  Shakespeare warned us to be “neither a borrower nor a lender,” while many modern investors see debt as a powerful tool to build wealth. The truth lies somewhere in between: debt can work for you or against you, depending on how it’s managed.

What Is Debt Really Costing You?

For some, debt feels like a friend—allowing the purchase of a home, investments, or even everyday goods that wouldn’t otherwise be possible. With the right lender and favourable terms, borrowing can feel like a smart financial move.

For others, debt is a burden. A mortgage-free day is often celebrated as financial freedom. Credit card balances and personal loans, on the other hand, can quickly turn into stress, sleepless nights, and financial hardship.

The Dark Side of Debt

Most people know someone who has struggled with credit card repayments, or worse, lost their home or declared bankruptcy due to mounting debt. Carrying too much of the wrong kind of debt can lead to financial instability and emotional strain.

Common bad debt examples include:

• High-interest credit cards

• Payday loans

• Unnecessary personal loans
  

These debts rarely add long-term value and can derail financial plans.

The Positive Side: Using Debt Strategically

Not all debt is harmful. In fact, some forms of borrowing are considered good debt when used strategically.

Examples include:

• Home loans – providing access to property ownership decades sooner.

• Investment loans – enabling the purchase of assets such as property or shares with long-term growth potential.

• Education loans – funding qualifications that increase earning potential.
  

In investing, debt can also be used for leveraging. For instance, borrowing to buy a larger share portfolio can increase diversification and potential returns. Other tools such as instalment warrants or geared managed funds may also be appropriate, depending on your risk tolerance.

How to Take Control of Your Debt

The key to making debt work for you is ensuring you’re in control—not the other way around. Here are some strategies:

• Review your current debts regularly.

• Focus on paying down high-interest debt first.

• Only borrow for assets that add long-term value.

• Understand your personal risk profile before leveraging.

• Seek professional financial advice before making major borrowing decisions.
  

Debt can be destructive if unmanaged, but when used wisely, it can be a stepping stone to achieving your financial goals. By knowing the difference between good debt and bad debt, and aligning your borrowing with your overall financial plan, you can turn debt into a tool for growth rather than a source of stress.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.