You’re staring at a credit card offer. Or maybe a student loan application. Or you’re wondering if buying that house means drowning in debt for decades.
And you’re terrified of making the wrong choice.
I get it. Debt feels dangerous. But what if I told you that some debt—the right kind—could actually make you wealthier? That refusing all debt might be the biggest financial mistake you make?
Back in 2009, I watched my younger brother turn down a modest student loan for a nursing program because he was absolutely convinced that “all debt is bad.” He worked part-time jobs instead, took six years to finish what should’ve been a three-year program, and missed out on nearly $200,000 in additional earnings during those delayed years. Meanwhile, his classmate who took the loan graduated on time, landed a $68,000/year position immediately, and paid off her $22,000 debt within four years.
That difference? It still haunts our family conversations.
The truth nobody talks about: debt is just a tool. Like a knife. You can use it to prepare a meal that nourishes you, or you can hurt yourself badly. What matters is understanding which is which, and when you’re holding the right tool for the job.
After 15+ years of counseling people through their financial decisions, I’ve seen brilliant people destroy their futures with bad debt, and I’ve watched others build million-dollar net worths by strategically using good debt. The difference between these outcomes isn’t luck or income—it’s knowledge.
You’re about to get that knowledge.
What Actually Defines ‘Good Debt’ vs. ‘Bad Debt’?
Most financial advice gives you the Disney version: “good debt builds assets, bad debt buys liabilities.” Technically true, but useless when you’re actually making decisions.
Here’s how I explain it to my clients:
Good debt makes you money over time. Either by increasing your income potential, building equity in an appreciating asset, or generating returns that exceed the cost of borrowing. It’s an investment that pays you back more than you pay in interest.
Bad debt costs you money over time. It finances depreciating assets, lifestyle expenses, or purchases that generate zero financial return. You pay interest for the privilege of having less money later.
But (and this is crucial) the same type of debt can be good or bad depending on the terms, your situation, and how you use it.
A mortgage at 3.5% on a house in a growing neighborhood that you can comfortably afford? Probably good debt. That same mortgage at 7.8% on a house you can barely afford in a declining market? Might be terrible debt.
When I counsel people on debt decisions, I use what I call the “Three Future Questions”:
- Will this debt increase my earning capacity or net worth 3-5 years from now?
- Is the interest rate lower than what I could reasonably earn by investing that money?
- Can I afford the payments even if my income drops 20%?
If you get two “yes” answers, you’re probably looking at good debt. One “yes” means proceed with extreme caution. Zero means run away.
The Consumer Financial Protection Bureau tracks how Americans use different debt types, and the patterns are telling. People who strategically use low-interest debt for education and home ownership generally build more wealth over their lifetimes than those who avoid all debt entirely—but only when they simultaneously avoid high-interest consumer debt.
Understanding debt properly is a core part of broader The Complete Guide to Personal Financial Management, which provides the full framework for making these decisions within your overall financial picture.
Another way to think about this: good debt should make tomorrow-you richer. Bad debt makes today-you temporarily happier but tomorrow-you poorer.
Key Takeaways:
- Good debt generates returns exceeding its cost; bad debt drains resources over time
- The same loan type can be good or bad depending on terms and personal circumstances
- Use the Three Future Questions to evaluate any borrowing decision
- Strategic debt use often builds more wealth than avoiding all debt
Types of Good Debt: Borrowing That Builds Wealth
Not all borrowing is created equal. Some types of debt have historically proven themselves as wealth-building tools when used correctly.
Mortgages (When Done Right)
A home mortgage is probably the most powerful wealth-building debt available to average people. Why? Because you’re borrowing money at relatively low interest rates to buy an asset that historically appreciates while you pay it down.
Think about the math: You put down $40,000 and borrow $160,000 at 4% to buy a $200,000 house. Over 15 years, that house appreciates to $280,000 (just 2.5% annual appreciation—very conservative). You’ve made $80,000 in appreciation, plus you’ve paid down a huge chunk of principal. Your net gain on that $40,000 investment? Potentially $100,000 or more, even after interest costs.
Try getting those returns in a savings account.
According to Federal Reserve data on household wealth, homeowners have a median net worth roughly 40 times higher than renters, and mortgage debt is a significant driver of that difference.
But—and this matters—mortgages can absolutely become bad debt if:
- You buy more house than you can afford (payments exceeding 28% of gross income)
- You’re in a declining market or overpriced bubble
- You use adjustable rates without understanding the risk
- You keep refinancing to pull out equity for consumption
Student Loans (With Major Caveats)
Student loans might be good debt. Might be.
When I evaluate whether educational debt makes sense, I look at expected return on investment. If you’re borrowing $30,000 for a nursing degree that leads to $65,000+ annual salaries, that’s probably smart. If you’re borrowing $120,000 for an art history degree with unclear job prospects… that’s probably disaster.
Federal Student Aid offers various loan programs with protections and relatively reasonable interest rates compared to private loans. Income-driven repayment plans mean your payments adjust if you hit financial hardship.
The uncomfortable reality: student loans are good debt when they increase your lifetime earnings by significantly more than the total cost of borrowing. They’re bad debt when they don’t.
Rule of thumb I use: your total student loan debt shouldn’t exceed your expected first-year salary in your field. Borrow $45,000 for a career paying $50,000+? Manageable. Borrow $100,000 for a career paying $35,000? You’re in trouble before you start.
Business Loans for Revenue-Generating Investments
Borrowing to start or expand a business that generates profit can be excellent debt. You borrow $50,000 at 7% interest to buy equipment that lets you increase revenue by $25,000 annually? That pays for itself in about 2.5 years, then keeps generating returns.
Small business loans, equipment financing, or commercial real estate debt often fall into the good debt category—assuming the business is viable and you’ve done proper planning.
Investment Property Mortgages
Buying rental property with mortgage debt can build serious wealth if the rental income exceeds all costs (including mortgage, maintenance, taxes, vacancies). You’re using the bank’s money to buy an appreciating asset that tenants pay down for you.
I know landlords who’ve built $2+ million net worths starting with a single rental property financed with a conventional mortgage. The leverage multiplies returns.
But (always a but) rental property mortgages become terrible debt when vacancy rates are high, you’ve underestimated costs, or property values decline.
Low-Interest Auto Loans (Sometimes)
This is controversial, but hear me out: if you can get 0%-2% auto financing and you need a reliable car for work, that can be good debt—especially if you invest the cash you would’ve spent instead of taking the loan.
If you can borrow $20,000 at 1.9% but invest that same cash at 8% average returns, you’re arbitraging the interest rate difference. That said, most people don’t actually do this. They finance the car AND don’t invest, which makes it neutral-to-bad debt.
Key Takeaways:
- Mortgages build wealth through appreciation and forced savings via principal paydown
- Student loans are only good debt if they significantly increase earning potential
- Business and investment property loans multiply returns through leverage
- Always compare borrowing costs to expected returns before taking on “good” debt
Types of Bad Debt: The Financial Traps That Drain Your Future
Now for the debt types that destroy more financial futures than any other cause. These are the wealth killers.
Credit Card Debt (The Worst Offender)
Credit card debt at 18%-29% APR is financial poison. Period.
When you carry a balance, you’re paying interest rates that would make a loan shark blush—for purchases that usually depreciate or get consumed immediately. That $2,000 TV you bought? It’s worth $800 in a year, but if you’re paying minimum payments at 22% interest, you’ll pay nearly $3,000 total over time.
The math is vicious. According to data from Experian’s consumer credit data, the average American credit card balance is over $6,000, and people carrying balances pay an average of $1,155 in interest annually.
That’s $1,155 you’ll never get back. Ever. It doesn’t build equity, doesn’t increase earning power, doesn’t appreciate. It just… disappears.
I’ve counseled people making $90,000 annually who can’t save a dime because they’re paying $800/month in credit card interest. That’s nearly $10,000 per year that could’ve been building wealth, going straight to banks instead.
Credit card companies love when you carry balances. That’s how they profit. Don’t give them the satisfaction.
Payday Loans and Cash Advances
If credit cards are financial poison, payday loans are weapons-grade plutonium.
These loans typically carry APRs of 300%-400% or higher. Let me say that again: three hundred to four hundred percent annual interest.
Borrow $500 for two weeks, pay back $575. Sounds manageable? That’s effectively 391% APR. Most people can’t pay it back and “roll over” the loan, trapping themselves in a cycle that can turn $500 into thousands of dollars in debt within months.
I watched this destroy my client Maria’s finances in 2016. She took a $400 payday loan for a car repair. Within eight months, through rollovers and additional loans, she owed $2,800 across three payday lenders. It took her two years and bankruptcy to recover.
Payday loans exist to extract maximum money from desperate people. There is no scenario where they’re good debt. None.
Auto Loans on Depreciating Vehicles
Most auto loans fall into bad debt territory because you’re borrowing money at 5%-12% interest to buy something that loses 20%-30% of its value the moment you drive it off the lot.
You finance $35,000 for a new car at 7% for six years. After three years, you’ve paid $20,000 (including interest) but the car is worth $18,000. You’ve lost $2,000+ in value even after putting $20,000 into it.
The worst version? Long-term loans (72-84 months) that leave you underwater (owing more than the car’s worth) for years. If you total the car or need to sell, you still owe money even after insurance or sale proceeds.
Buy used cars with cash when possible. If you must finance, put significant money down and keep the term under 48 months.
Consumer Debt for Lifestyle and Depreciating Purchases
Financing furniture, electronics, vacations, clothing, or other consumption with debt is almost always a terrible idea.
These purchases generate zero financial return. The vacation is a memory. The furniture depreciates. The clothes wear out. Meanwhile, you’re paying 10%-25% interest on them.
“12 months same as cash” furniture financing? It’s a trap. Miss that 12-month deadline by one day, and they backcharge you the full interest—often at 25%+ APR on the original balance.
Retail store credit cards offering “15% off your first purchase if you open a card today”? The interest rates are typically 24%-30%. Unless you pay in full immediately, you’ll lose more in interest than you saved.
Home Equity Loans for Consumption
Taking a home equity loan or line of credit to pay for vacations, cars, or lifestyle expenses is particularly destructive because you’re converting unsecured debt into debt secured by your home.
Can’t pay your credit card? Your credit score tanks. Can’t pay your home equity loan? You lose your house.
I’ve seen people do this three or four times over a decade—pulling equity out for consumption—only to end up underwater when the housing market softened. They borrowed their way out of homeownership.
Key Takeaways:
- Credit card debt at 18%+ APR destroys wealth faster than almost anything else
- Payday loans are predatory and should be avoided in all circumstances
- Auto loans on new cars finance depreciating assets at high effective costs
- Never borrow against appreciating assets (like your home) to fund consumption
The Gray Area: When ‘Good’ Debt Can Turn Bad
Here’s where it gets messy. The debt types we called “good” earlier? They can all become terrible debt under the wrong conditions.
This is what keeps me up at night when counseling clients, because the line between wealth-building and financial disaster is thinner than most people realize.
When Mortgages Become Nightmares
Remember 2008? Millions of people learned the hard way that mortgages can destroy you financially.
I had clients in 2007 who bought houses with adjustable-rate mortgages at 4% with plans to refinance before the rate adjusted. When the market crashed, they couldn’t refinance (no equity, tighter lending), their rates jumped to 7%-8%, and suddenly their $1,800 mortgage payment became $2,600. They couldn’t afford it, couldn’t sell (underwater), and lost the house to foreclosure.
Their “good debt” became life-ruining debt because:
- They overextended on purchase price
- They didn’t understand the terms
- They assumed appreciation would continue
- They had no backup plan
A mortgage becomes bad debt when:
- You’re house-poor (spending over 35% of income on housing)
- You used exotic loan products without understanding risks
- You bought during a bubble without recognizing it
- You’re in a declining area or bad market timing
- You continuously refinance to pull out equity
The same mortgage that builds wealth for one person can bankrupt another. The difference is usually the debt-to-income ratio and understanding of terms.
When Student Loans Become Anchors
The student loan crisis exists because millions took on education debt that doesn’t generate sufficient returns.
Borrowing $150,000 for a law degree expecting to make $180,000 as a corporate lawyer? That can work. Borrowing $150,000 for that same degree but ending up in public interest law making $55,000? You’re financially crippled for decades.
I worked with a 34-year-old client in 2019 who owed $220,000 in student loans for a psychology master’s degree. Her job paid $48,000. Her required monthly payment under standard repayment was $2,400—literally half her take-home pay. She lived with her parents and had no prospect of ever buying a home or starting a family financially.
That’s not good debt. That’s a ball and chain.
Student loans turn bad when:
- Total debt exceeds expected first-year income
- The degree doesn’t increase earning potential
- You borrowed for living expenses beyond necessities
- You attended an expensive private school when a cheaper option offered similar outcomes
- You didn’t finish the degree
When Business Debt Destroys Rather Than Builds
Small business failure rates are high. When you’ve financed that business with debt, failure doesn’t just mean lost time—it means crushing debt with no income source to pay it.
I knew a guy who borrowed $180,000 against his home equity to open a specialized retail shop in 2012. Amazon and online competition killed his business within 18 months. He lost the shop, lost the house, and filed bankruptcy.
His “good debt” investment strategy destroyed 15 years of wealth building in less than two years.
Business debt becomes bad debt when the business fails, when you’ve personally guaranteed loans, or when you’ve risked assets you can’t afford to lose.
The Interest Rate Tipping Point
Even “good debt” types become questionable at high enough interest rates.
A mortgage at 3.5%? Probably good debt. That same mortgage at 10%? Much harder to justify, since you could potentially earn better returns investing your down payment instead.
Student loans from the government at 4%? Reasonable. Private student loans at 11%? You’d better be absolutely certain about your income potential.
Market conditions change what qualifies as good debt. In the low-interest environment of 2010-2021, leverage was cheap and debt was attractive. As rates rose in 2022-2024, the calculation shifted dramatically.
Key Takeaways:
- Good debt becomes bad when terms are unfavorable or you overextend
- Mortgages destroy finances when you’re house-poor or use risky loan products
- Educational debt is only good if it actually increases earnings substantially
- Interest rates matter enormously—high rates can turn good debt types into bad deals
How to Make Smart Borrowing Decisions
After counseling hundreds of people through debt decisions, I’ve developed a framework that works regardless of the specific situation.
Making smart choices about when to borrow money—and when not to—comes down to honest evaluation and a few critical calculations.
Calculate the True Cost
Most people only look at the monthly payment. That’s exactly what lenders want you to do, because it hides the true cost.
Always calculate the total amount you’ll pay over the life of the loan, including all interest and fees.
That $25,000 car loan at 6.5% for 72 months? Your monthly payment is $389, which feels manageable. But your total payments are $28,008. You’re paying $3,008 in interest alone—money that vanishes.
Now calculate what that car will be worth when you make the final payment. Probably 8,000−8,000−10,000 if you’re lucky. You paid $28,008 for something worth $9,000. That’s a terrible deal.
For any debt you’re considering:
- Multiply monthly payment × number of months = total cost
- Subtract principal borrowed = total interest paid
- Compare interest paid to expected value/returns
If the numbers make you uncomfortable, trust that feeling.
The Income Multiple Rule
Different debt types justify different amounts relative to your income:
Mortgage: Total home price shouldn’t exceed 3x your gross annual income (conservative) or 4x maximum. Monthly payment shouldn’t exceed 28% of gross monthly income.
Student loans: Total educational debt shouldn’t exceed 1x your expected first-year salary in your field.
Auto loans: Total car value shouldn’t exceed 50% of your annual income. Monthly payment shouldn’t exceed 10% of gross monthly income.
All debt combined: Total monthly debt payments (mortgage, cars, student loans, credit cards, etc.) shouldn’t exceed 36% of gross monthly income.
These aren’t arbitrary. They’re based on default rates and financial stress data. When people exceed these ratios, their default risk skyrockets and quality of life plummets.
I’ve seen people making $80,000 annually with $70,000 in car loans, $40,000 in credit card debt, and $200,000 in student loans. Their monthly debt payments exceeded $3,800—more than 70% of their take-home pay. They had no money for savings, emergencies, or life. That’s debt slavery, not wealth building.
Ask the Opportunity Cost Question
Every dollar you spend on debt payments is a dollar you can’t invest elsewhere.
If you’re paying $400/month on an auto loan at 5% interest, that’s $400 you can’t put into a retirement account earning 9% average returns. Over 20 years, that difference is enormous.
Before taking on any debt, ask: “What else could I do with the money I’ll be spending on payments?”
Sometimes debt still makes sense despite the opportunity cost. If you’re borrowing for a home that will appreciate and provide housing, that’s probably better than investing the equivalent rent payments. But if you’re financing a jet ski, the opportunity cost is devastating.
The Emergency Fund Test
Never take on new debt without having an emergency fund in place first—unless the debt is creating the emergency fund indirectly (like a mortgage on a house you’d otherwise rent for similar money).
If you take on debt without savings and then face an emergency, you’ll take on worse debt to cover it. You finance a car, have no savings, then get hit with a $1,500 emergency expense, so you put it on a credit card at 23% APR.
Your auto loan at 6% indirectly caused credit card debt at 23%. That’s a disaster cascade.
Have 3-6 months of expenses saved before taking on optional debt. If the debt isn’t optional (you need housing, you need education for career change), build emergency savings as aggressively as possible while managing the debt.
Read and Understand the Terms Completely
This sounds obvious, but most people don’t do it.
Read every word of the loan agreement. Understand:
- Exact interest rate (fixed or variable?)
- Total term length
- Prepayment penalties
- Default terms and consequences
- Fees (origination, annual, late payment, etc.)
- What happens if you miss payments
- Whether debt can be discharged in bankruptcy
The mortgage crisis happened partly because people signed documents they didn’t understand. They had no idea their payment could balloon, or that they’d face prepayment penalties, or that they were liable for the full balance even if the house value dropped.
Ignorance doesn’t protect you. If you don’t understand the terms, don’t sign. Get explanations in writing. Have someone knowledgeable review it.
When making major borrowing decisions, having a solid overall financial framework helps enormously. The Complete Guide to Personal Financial Management provides that broader context for how debt fits into your complete financial picture, including cash flow, investments, and long-term planning.
Consider Your Personal Risk Tolerance and Life Stage
Debt that makes sense at 25 might be crazy at 55.
Taking on a 30-year mortgage at 30 years old? Standard. Taking on that same mortgage at 60? You’ll be making payments into your 90s, through retirement, when income drops.
Heavy student loan debt for career change at 23? Recoverable. That same debt load at 45 with kids in school and retirement looming? Dangerous.
Your risk tolerance matters too. Some people psychologically can’t handle debt and will lose sleep even over “good” debt with great terms. The stress impacts their health and quality of life. For them, aggressive debt payoff might be smarter than optimal investment allocation, even if it’s not mathematically optimal.
Financial decisions are personal. The “right” answer on paper might be wrong for your life.
Key Takeaways:
- Always calculate true total cost, not just monthly payments
- Follow income multiple rules to avoid overextending
- Consider opportunity cost—debt payments compete with investing
- Maintain emergency savings before taking on optional debt
- Understand all loan terms completely before signing
Wrapping Up: Your Debt Future Starts with Today’s Decisions
Debt isn’t good or evil. It’s a tool, and like any tool, it can build or destroy depending on how you use it.
The difference between people who build wealth using debt and people who drown in it isn’t intelligence or luck—it’s understanding the crucial differences and making informed decisions based on real math and honest self-assessment.
When you borrow money to increase your earning capacity, buy appreciating assets, or generate returns exceeding the borrowing cost—and when you do it on terms you can manage even during difficult times—that’s good debt. It’s leverage that multiplies your wealth-building capacity.
When you borrow money to fund consumption, buy depreciating assets, or take on terms you don’t fully understand at interest rates that exceed any reasonable returns—that’s bad debt. It’s a weight that slows your financial progress and can sink you entirely.
The gray area—where good debt turns bad through overextension, poor timing, or unfavorable terms—is where most financial destruction actually happens. Being honest about your situation, conservative in your estimates, and thorough in understanding terms protects you from that trap.
You now understand the framework. You know the questions to ask. You can calculate the real costs and compare them to expected returns. You can evaluate whether debt serves your long-term financial goals or just provides short-term gratification at long-term expense.
Most people never learn this. They make debt decisions based on monthly payments and sales pitches, then wonder why they can’t build wealth despite decent incomes.
You’re different now. You have the knowledge.
Use it.
Ready to Take Control of Your Financial Future?
Stop making debt decisions in isolation. Start with a comprehensive financial plan that accounts for debt strategy, cash flow management, investment allocation, and long-term goals.
Understand exactly where you stand, where you’re going, and how debt—good or bad—fits into that picture.
Take action today. Evaluate your current debts using the frameworks above. Calculate whether they’re building or destroying your wealth. Make a plan to eliminate bad debt aggressively while strategically using good debt to accelerate your financial progress.
Your financial future is being determined by the debt decisions you make today. Make them count.
Frequently Asked Questions
Q: Is a mortgage always considered good debt?
Not always. A mortgage is good debt when you can comfortably afford payments (under 28% of gross income), you’re buying in a stable or appreciating market, you understand the terms fully, and you plan to stay long enough to build equity. It becomes bad debt when you overextend, use risky loan products without understanding them, or become house-poor by spending too much on housing relative to income. The 2008 financial crisis proved that mortgages can absolutely be destructive debt when misused.
Q: How do I know if student loans will be worth it for my specific situation?
Compare your total expected loan amount to your realistic first-year salary in your chosen field. If the debt exceeds your first-year income, you’re at high risk. Research actual job placement rates and salaries for your specific program—not just the school’s marketing materials. Consider whether a less expensive school offers similar outcomes. Ask yourself honestly: will this degree directly lead to higher income, or am I hoping it will? Hope isn’t a strategy. If the numbers don’t clearly work, consider alternatives like starting at community college, working while studying, or choosing a different career path.
Q: Should I pay off all debt before investing, even low-interest debt?
This depends on interest rates and your personal psychology. Mathematically, if you have debt at 4% interest and can earn 8% average returns investing, you should invest rather than pay extra on the debt. But personal finance is personal. If debt causes you significant stress, or if you lack discipline to actually invest the difference, paying off debt might be smarter even if not mathematically optimal. Always pay off high-interest debt (above 7-8%) before investing beyond employer retirement match. For low-interest debt (under 5%), investing usually makes more sense if you have the discipline.
Q: What should I do if I already have a lot of bad debt?
Stop accumulating more immediately—cut up credit cards if needed, commit to no new debt. List all debts with balances, interest rates, and minimum payments. Use either the avalanche method (pay minimums on everything, put all extra toward highest interest rate debt) or snowball method (pay minimums on everything, put all extra toward smallest balance for psychological wins). Avalanche saves more money; snowball provides motivation through quick wins. Consider balance transfer cards with 0% promotional periods for credit card debt (but only if you commit to paying it off during the promotional period). For overwhelming debt, consult a legitimate credit counselor—not debt settlement companies that charge fees and damage credit.
Q: Can good debt improve my credit score?
Yes, when managed properly. Mortgages, auto loans, and student loans in good standing contribute positively to your credit score by showing payment history, credit mix, and responsible use of credit. Making on-time payments for years builds strong credit. However, taking on too much debt at once, maxing out credit lines, or missing payments will destroy your credit regardless of the debt type. The three major credit bureaus—Experian, TransUnion, and Equifax—evaluate how you manage all debt types when calculating scores. Good debt improves credit when you borrow reasonable amounts relative to income and pay consistently on time.
Reviewed Sources: Federal Reserve (federalreserve.gov), U.S. Treasury (treasurydirect.gov), Consumer Financial Protection Bureau (consumerfinance.gov), Bureau of Labor Statistics.
Review Disclaimer: This article was reviewed by our financial content team to ensure factual accuracy and neutrality.
References
Academic Books:
Thaler, R. H., & Sunstein, C. R. (2021). Nudge: The final edition. Yale University Press.
(Provides behavioral economics insights into how people make financial decisions, including debt choices and cognitive biases affecting borrowing behavior.)
Warren, E., & Tyagi, A. W. (2016). All your worth: The ultimate lifetime money plan. Free Press.
(Offers framework for evaluating good vs. bad debt within overall financial planning and household budget allocation strategies.)
Peer-Reviewed Papers and Official Reports:
Bhutta, N., Bricker, J., Chang, A. C., Dettling, L. J., Goodman, S., Hsu, J. W., … & Windle, R. A. (2020). Changes in U.S. family finances from 2016 to 2019: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin, 106(5), 1-42. https://www.federalreserve.gov/publications/2020-bulletin.htm
(Provides comprehensive data on household debt levels, types, and correlations with wealth accumulation across American demographics.)
Looney, A., & Yannelis, C. (2019). The consequences of student loan credit expansions: Evidence from three decades of default cycles. Journal of Financial Economics, 137(1), 75-98. https://doi.org/10.1016/j.jfineco.2019.11.006
(Examines when educational debt becomes destructive versus beneficial based on default patterns and post-graduation earnings.)
Consumer Financial Protection Bureau. (2022). Consumer credit card market report. CFPB Office of Research. https://www.consumerfinance.gov/
(Documents credit card interest rates, consumer behavior patterns, and the financial impact of revolving high-interest debt on household finances.)
Applied Study:
Gelman, M., Kariv, S., Shapiro, M. D., Silverman, D., & Tadelis, S. (2020). How individuals respond to a liquidity shock: Evidence from the 2013 government shutdown. Journal of Public Economics, 189, 103318. https://doi.org/10.1016/j.jpubeco.2018.06.007
(Demonstrates how households with different debt structures respond to income shocks, illustrating the risks of overextension even with “good” debt types.)