"Good Debt" and "Bad Debt?"

You’ve heard the story: A private business borrows money foolishly — say, to finance a corporate jet used mainly to fly the CEO off to ski. That borrowing surely results in “bad debt” — not necessarily debt that will not be repaid, but rather debt unwisely incurred, with little offsetting long-run benefit. On the other hand, the same firm might borrow to update its production equipment. That borrowing would increase debt, but it would be “good debt.”

The same could be true of a family. Borrow to finance an expensive vacation that you cannot afford in cash, and you accumulate “bad debt.” But borrow for education, or for a home where you build equity, and that is “good debt.”

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