Why Not All Debt is Bad: A New Perspective

For years, Debt has been considered bad. Your parents might have advised you not to take any Debt. There are certain religions where Debt is viewed as a curse. For some people, the phrase “debt is death” is coded so strongly in their DNA that even thinking of having Debt can give them sleepless nights.

All Debt is bad, but this is a blanket statement; not all Debt is created equal. From the F.I.R.E. perspective, Debt could be a good debt or a bad debt, very much like we discussed earlier: the good expense and the bad expense. Similarly, a good debt is a debt taken to invest into a passive income-generating income stream. In contrast, a bad debt is a pure liability that does not contribute to income.

For example, a loan to buy a rental property is a good debt, whereas a loan to buy an expensive car for personal use is a bad debt. The definition of bad Debt might upset certain classes of people. Though by definition, you should avoid all bad Debt, everything is not that black and white. For example, with the definition, a student loan becomes a bad debt. However, not getting a formal education to avoid Debt may not be a great idea.

If you focus on F.I.R.E., you should minimize bad debts. However, taking extreme measures to avoid bad Debt may not be a good idea, so instead of focusing on eliminating bad debts, consider minimizing them.