Good Debt and Bad Debt

Proverbs 22:7 (KJV)
The rich ruleth over the poor, and the borrower is servant to the lender.

* Before you start reading this post, I’d like to put a small disclaimer. This post is my personal opinion and philosophy about good debt and bad debt; there is a pretty good chance of you being offended by the content of this post because almost everything you will read here will be completely opposite and different from what you’ve been taught and told.

good debt

Good Debt Bad Debt

When we came to the States we didn’t know about the difference between good debt and bad debt, we even didn’t know that good debt even a thing. A debt was a bad thing for us by default. We even didn’t have a single credit card before we came. But the first day we came, people around us started telling about the importance of FICO score and credit history. ‘You need to have credit’, they said, ‘Without having a good and solid credit score you will not be able to buy a house, a car, or rent an apartment’. And the most important thing they said was, ‘Without having credit score and history you can’t use good debt for building your wealth.’


I didn’t know about the whole concept of using debt as a leverage, and people started revealing the ‘secrets’ of this “easy way to wealth”. I will not write about all the advice we got, you probably aware about them: invest all your money, buy a property with nothing or minimum down, rent the property and use renter’s money to pay it off. You can check it online, there is a bunch of “seminars” about how to get rich with other people’s money.


We started thinking about it, after a couple of weeks of discussion we created a financial chart where we found about $248 in surplus every month. Awesome, we could use other peoples money to create our own wealth, how cool is that? But my wife, being a smart woman, asked me one question

‘If it’s so easy, why don’t other people do it?’

This question got me thinking… Seriously, why?! If it’s so easy, the market should have been full of successful, and this is the key word, investors using Other People’s Money (OPM) And the answer for this question was really simple, ‘It’s not so simple’ When people do all these things, when they do all the calculations and assumptions, they assume everything will work as it should be. And we all know, it almost never does.

bad rentersGood debt, as people call it, only works in a vacuum, ideal scenario. Scenario when you don’t have to deal with vacancy, water heater and air-cooling systems going down, renters not paying the rent. People also forget about stuff that needs to be fixed and replaced. And when it stops working people realize that OPM is not that fun as they used to think. And Good Debt is not that Good anymore, it’s still DEBT. Debt that has to be paid.

Fortunately or unfortunately, there are no shortcuts to wealth, but the truth is it’s so easy. It’s so easy that I still don’t understand WHY DON’T OTHER PEOPLE DO IT?

The algorithm is EASY:
1. Earn Money
2. Spend Less then you Earned
3. Invest the surplus

** I understand that there are a lot of people that used OPM and it works for them, I understand that there are people who created wealth using ‘good debt’. And of course, I understand that this concept is popular in FIRE community. But for us, debt is an anchor golden cuffs if you will. No matter how good and pretty they are, they are still cuffs.

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2 Responses to Good Debt and Bad Debt

  1. I’m like you. I hate having debt anchor me to anything. I don’t like seeing money leave my bank account for anything 🙂 So I feel better not having a mortgage but I understand the concept of using debt as a tool. It’s just not a tool that I’d like to employ for me at this time 🙂
    Mustard Seed Money recently posted…Is Dave Ramsey’s Financial Peace University Worth It?My Profile

    • First of all, thanks for your comment, I appreciate it.
      Regarding using debt as a tool, now I fully aware about it, and I even can calculate the math behind it, but… Every time when I try to think about this ‘vehicle’ and apply our family circumstances, I don’t feel safety at all. For sure, there are people who use this tool and maybe, there are some of them that are successful. But it’s not for everyone, it’s for sure.

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