There is no good debt, only cheap debt and expensive debt

The standard advice sorts debt into two bins. Good debt buys an appreciating asset — a house, a degree. Bad debt buys consumption — holidays, dinners, a television.

It is a tidy story and it fails constantly. A degree that does not raise your income is not good debt because it was educational. A 3% mortgage on a house you sell in two years is not automatically wise. Meanwhile a modest loan at 5% to replace the car you need to reach work is entirely sensible, and the category system calls it consumption.

A better test asks two questions: what does this borrowing cost, and what does it actually buy?

The cost half is arithmetic

The same $15,000 borrowed three ways, with wildly different prices:

• Credit card at 24%, paying $400 a month — 5y 11m and $13,002 of interest.
• Auto loan at 7% over 5 years — $297 a month, $2,821 of interest.
• Student loan at 5.5% over 10 years — $163 a month, $4,535 of interest.

Same principal. The card costs $10,181 more than the auto loan. Nothing about the category produced that gap — the rate and the term did.

The value half is a judgement

Ask what the borrowing buys, and be specific:

Does it increase income? A qualification that demonstrably raises earnings may justify meaningful interest. One that does not is expensive regardless of how the loan is labelled.

Does it buy something that outlasts the loan? A five-year loan on a car you keep for twelve years is reasonable. An 84-month loan on a car you replace in five is paying for something you no longer have.

Does it prevent a larger cost? Borrowing to fix a roof beats letting water into the structure. This is the case people most often miss, because it looks like spending rather than investing.

Would you buy it at that price in cash? A $2,000 sofa financed at 24% over three years is not a $2,000 sofa. If the real price would put you off, the financing is doing the persuading.

The useful ranking

Forget the two bins. Rank every debt you hold by interest rate and attack the top. A dollar against a 24% card does roughly four times the work of a dollar against a 6% loan — and it does not matter at all what either debt was originally for.

The rate tells you the priority. The value question tells you whether to borrow at all.

Where cheap debt is genuinely worth keeping

Low-rate debt can be worth carrying rather than rushing to clear. A fixed-rate mortgage at 3% has two things going for it: a diversified portfolio has historically returned more than 3%, and inflation erodes the real value of a fixed payment every year. Paying it off early is a guaranteed 3% return — safe, but likely a poor use of money that could be invested or aimed at more expensive debt.

Above roughly 6–8%, that argument weakens quickly. Above 15%, it disappears entirely: no investment reliably beats a guaranteed return that high.

The one rule that survives

Debt used to buy something that loses value fast, at a rate that compounds faster, is the trap. That is what makes card debt on consumption uniquely destructive — the thing is gone, the balance is not, and the rate is punishing.

Everything else is a calculation you can run, and the answer depends on your rate, your term, and what the money bought — not on which bin someone put it in.