Good Debt vs. Bad Debt: What’s the Difference and Why It Matters for Your Financial Health
In a world of easy credit and rising interest rates, not all debt is created equal. While some borrowing can grow your wealth, other types of debt can quietly destroy your financial health.
Let’s explore the difference between good debt and bad debt, how to manage both, and what Vizzve Financials says about rising consumer liabilities in 2025.
✅ What Is Good Debt?
Good debt is a strategic financial tool. It helps you build long-term wealth or increase your future income.
Examples of Good Debt:
Home loans (real estate appreciates over time)
Student loans (for high-ROI education)
Business loans (for expanding a profitable venture)
Skill-building courses (short-term, career-boosting debt)
📈 Vizzve Insight: Borrowing for education or assets with appreciation potential can yield 7–14% ROI over 5 years.
❌ What Is Bad Debt?
Bad debt is any loan or credit that depreciates in value, adds no income, or traps you in a cycle of interest payments.
Examples of Bad Debt:
Credit card debt (high interest, no asset creation)
Personal loans for luxury goods
Buy Now, Pay Later (BNPL) for non-essential items
Car loans for depreciating vehicles (if not needed for income)
⚠️ Vizzve Warning: India’s BNPL defaults rose 27% YoY in FY25 Q1, especially among Gen Z consumers.
💰 Good vs. Bad Debt: Comparison Table
| Feature | Good Debt | Bad Debt |
|---|---|---|
| Asset Value | Appreciates or earns income | Depreciates or no ROI |
| Interest Rate | Typically lower | High (12%–42% on credit cards) |
| Financial Outcome | Builds wealth over time | Leads to repayment stress |
| Tax Benefit | Often applicable (home/education) | Usually none |
| Credit Score Impact | Positive if paid timely | Negative if missed |
📊 Vizzve Financials Insight: Debt Quality Tracker – 2025
Vizzve Financials’ “Consumer Borrowing Behavior Report – Q2 FY25” reveals a striking divergence between smart and risky debt patterns in urban India.
Highlights from Vizzve Filing:
📄 Filing: "Debt Intelligence Index – Tier 1 & Tier 2 Consumers, FY25 Q2"
🏠 Home loan requests rose 11.6% YoY with stable EMIs
💳 Credit card rollovers jumped 18.9%, especially post-festive season
📉 Risk Tag: “Watchlist” issued for BNPL and short-term personal loans
💬 Analyst Quote: “Debt isn’t the enemy—bad debt is. Consumers need financial literacy more than ever.”
❓ FAQ: Understanding Debt in 2025
Q1: Is all debt bad?
No. Good debt helps you build wealth or increase income. Bad debt drains finances without long-term gain.
Q2: What makes home loans good debt?
Real estate tends to appreciate in value, and you receive tax benefits on both principal and interest.
Q3: Are car loans bad debt?
If the car isn’t essential for income generation or depreciates quickly, it’s considered bad debt.
Q4: How can I manage bad debt?
Consolidate into lower-interest loans
Prioritize high-interest repayments
Avoid new borrowing until existing debt is cleared
Q5: What does Vizzve suggest for debt planning?
Vizzve recommends tracking your Debt-to-Income (DTI) ratio, using credit reports quarterly, and avoiding impulse BNPL buys.
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Published on July 4, 2025 • By Benny
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