Good Debt vs. Bad Debt

Updated:  March 2, 2022

You may have heard financial experts talking about good debt versus bad debt and wonder how debt can be Good or Bad?

Generally speaking, good debt is for purchases that appreciate in value or significantly improve your quality of life. Getting a bank mortgage to purchase a home is typically an investment, as most homes generally appreciate over time. Investing in your education by taking out student loans can also be a form of good debt, as it can help increase your future employment earnings.

Bad debts, on the other hand, typically do not provide you with any long-term benefit. Even though you may need a car for transportation, it is still an example of bad debt. The average car drops significantly in value the moment you drive it off the car lot.

The most common example of bad debt is credit cards, especially if you carry a balance each month and make only the minimum payments which results in interest costs. People tend to use credit cards for dining out or entertainment, which has no long-term benefit or value.

Is there is such a thing as good debt, or is it best to have no debt at all? Unfortunately, this is not realistic for most of us, so we have to do our best to reduce or eliminate bad debt.

According to Statistics Canada, debt levels continue to hover near all-time highs. In 2020, Canadians owed just over $1.70 for every $1 in disposable income they earn in a year. Total consumer debt stands between 2.0 and 2.5 trillion with mortgage debt significantly increased.

If you carry a lot of bad debt and can only make minimum payments, then it’s time to look for help. There are several debt solution options to help you manage, pay down or settle debts, so it’s important to seek professional advice.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.