Is Treating Debt Repayment Like a Game the Only Way to Win?
Megan Reynolds

Sometimes going into debt can save you money. For example, for a couple years after the financial crisis, the housing market went completely out of whack. Rents were more expensive than mortgages in more than a handful of cities. If it’s cheaper to finance a home than to rent that very same home, go ahead and take on the debt. You’ll also get to deduct the mortgage interest from your taxes.

The difference between “good debt” and “bad debt” is pretty simple. Ask yourself two questions. 1. Will this debt help me financially? 2. Will this debt have a manageable interest rate?

1 is pretty simple. If it can save you money, if it can give you money to make more money, or give you access to means to make more money, then you’re halfway there.

2 is considerably more tricky. Consider the return on investment from having taken on the loan. Is the likely case scenario greater than the interest rate charged? This will require good judgment on your part.

Taking out a six figure loan to major in a liberal arts degree at a middle tier private school is not an example of good judgment. Taking on a 6% unsecured loan to get enough capital to start your business (in which you know there is a proven demand and business model) that you think has a very reasonable chance of yielding 8–9% is an example of good judgment.

Nobody will tell you that incurring “good debt” should be avoided at all costs. Sensible financial types will tell you incurring “bad debt” should be avoided at all costs. And by “bad debt” I mean things like credit card interest, store financing for furniture/electronics, excessive student loans and car loans (if you’re borrowing to have a nicer car than you otherwise could afford, that’s bad debt. If you’re borrowing to have a car that you need, that’s good debt).

If you find that you have bad debt, yes, strive to pay it off however you can. Gamify it. Develop your own personal amortization schedule. Whatever gets you to bringing the principal amount on your bad debt to zero is a good thing.

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