Credit Card Debt

Not all debts are created equal, and some are considered “good” debts.

Credit card debt is bad debt.

Mortgages and student loans are often seen as good debts because they are tied to investments that tend to appreciate or enhance earning potential. A mortgage allows you to purchase a home, which generally increases in value over time, helping to build equity. Plus, you can deduct the interest paid on the first $750,000 of your mortgage. Similarly, student loans fund education, which can significantly improve long-term earning capacity, making it a worthwhile investment in your future earnings and financial fitness.

Credit card debt, on the other hand, comes with high interest rates, typically far exceeding 15%. This leads to rapid accumulation of debt, making it harder to pay off over time. Credit card debt is usually incurred on short-term purchases that don’t appreciate in value, resulting in borrowers paying much more than the original cost of their purchases, and creating a vicious cycle of financial strain.

The key difference lies in how these debts are used and their long-term benefits. While credit card debt can spiral out of control and offer little return, mortgages and student loans provide opportunities for financial growth. Responsible management of good debts can improve net worth, while bad debt like credit card debt tends to erode it.

Creating and sticking to a budget can eliminate credit card debt, redirect the savings toward financial goals, and make it so the credit card companies pay you through signup bonuses, points, and miles. Book a free 30-minute consultation so we can talk about your goals, building a budget, and credit card strategies.