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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Good debt helps you build wealth (like a mortgage); bad debt costs you money without building value (like credit card debt).
Why It Matters
Not all debt is created equal. A mortgage at 7% interest on a home that appreciates 4% yearly is 'good debt' - you're building equity and have a place to live. Credit card debt at 24% APY that funded a vacation is 'bad debt' - it's costing you money with nothing to show for it. Understanding this difference is crucial before you start investing.
Key Points
- Good debt: mortgage, student loans (moderate), business loans that generate income
- Bad debt: credit cards, car loans on depreciating assets, payday loans
- Pay off bad debt (especially high-interest) before investing in the stock market
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Good Debt vs Bad Debt
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Common Questions
Good debt helps you build wealth (like a mortgage); bad debt costs you money without building value (like credit card debt). Not all debt is created equal. A mortgage at 7% interest on a home that appreciates 4% yearly is 'good debt' - you're building equity and have a place to live.
Not all debt is created equal. A mortgage at 7% interest on a home that appreciates 4% yearly is 'good debt' - you're building equity and have a place to live. Credit card debt at 24% APY that funded a vacation is 'bad debt' - it's costing you money with nothing to show for it. Understanding this difference is crucial before you start investing.
Good debt: mortgage, student loans (moderate), business loans that generate income
Bad debt: credit cards, car loans on depreciating assets, payday loans
Pay off bad debt (especially high-interest) before investing in the stock market