Good Debt Vs. Bad Debt: What’s the Difference?

Good debt is money you borrow to buy something that helps you grow, while bad debt is money you borrow for things that don’t help you grow, or even make you shrink.

Imagine you have two piggy banks: one is full of shiny coins, and the other has crumpled paper. The shiny coins are like good debt, they help you buy something valuable, like a bike to ride to school or books to learn new things. That bike can take you farther, faster, and maybe even help you make friends.

The crumpled paper is like bad debt, it’s money you borrow for things that don’t last long, like candy that melts in your hand or a toy that breaks after one day. You’re happy at first, but soon you have to pay back the money, and it feels like you're going backward.

• Good debt is like borrowing from a friend to buy a new backpack full of supplies for school. You use it every day, and it helps you learn.
• Bad debt is like borrowing from a friend to get a super cool toy that breaks after one use, now you have to pay back the money, but your toy is already broken.

So, good debt grows with you; bad debt shrinks you down.