I've heard many different explanations around what qualifies as "good debt". Sometimes the answer is "nothing" and sometimes the answer is "everything". I think Robert Kiyosaki's definition from his 2015 book "Cashflow Quadrant" provides the best answer.

I have a penchant for pithy and contrarian opinions, which may influence what follows. Kiyosaki keeps it simple:

By this definition, almost all forms of debt can be classified as bad debt. Car loans, primary residence mortgages, revolving credit loans, home equity loans, and even small business loans when your personal assets are posted as collateral. If you are paying debt from your wages, commissions, or any other form of income that requires direct labor, it's bad debt.

I can think of two examples of good debt. Mortgages on rental properties that are paid by tenants is the example Kiyosaki uses. Just know that leverage cuts both ways and poor cash flow could topple your entire real estate investing strategy. Corporate financing, whether through bank loans or bonds, is another form of good debt when done responsibly. True, the company is paying for it, but it's ultimately revenue from sales. You could argue the customers are paying for that debt, and the company's managers are not personally responsible for the balance. This action is simply a transfer of funds across space and time for the sole purpose of business investing, not for satisfying a personal desire.

I'd elaborate on good debt by saying that borrowing money to increase a potential return on investment (i.e. leverage) is a reasonable decision worthy of serious consideration. If you are borrowing money to buy a wedding ring or other status artifact, you've missed the point.

Many people my age borrow money to pay for everything from luxury cars to new carpets. Alternatively, Dave Ramsey opposes debt financing for everything except 15 year fixed-rate mortgages. Opinions on debt classification run far and wide. I'm not telling you how to think, but I suggest you try to draw your own conclusions by thinking critically about what debt really is.

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