Debt: Your Tool or Your Trap?

Good, Bad, and Neutral Debt: Understanding the Spectrum of Borrowing

By ChatGPT, inspired by Scott Galloway’s voice

Debt is like fire—it can warm your house or burn it down. In a world where the temptation to borrow is only a click away, understanding the difference between good debt, bad debt, and neutral debt can be the difference between financial freedom and a lifetime of being owned by your lenders.

Let’s break it down.

Good Debt: When Your Assets Work for You

Good debt is your friend, and like a well-trained dog, it works for you. It’s the kind of debt that fuels growth, appreciating in value over time. Take a mortgage on a house, for example. You’re borrowing money, yes—but the asset (the house) is likely to appreciate in value, especially in a growing market. And let’s not forget: a home is more than just an investment. It’s shelter, security, and for most people, the cornerstone of building long-term wealth.

So why is it “good”? Simple. The debt helps you buy something that grows in value and could eventually lead to higher returns than what you originally paid. That’s a win.

Think of it this way: the best kind of good debt is like getting a foothold on a ladder that takes you to a higher financial plateau.

Bad Debt: When You’re Paying to Lose

On the flip side, bad debt is when you borrow money to buy something that loses value faster than you can blink. Take jewelry, for example. Sure, it’s shiny, makes you feel good, and might even impress a few people at a party. But from a financial standpoint? That gold chain around your neck is a dead weight pulling you down.

Jewelry, much like other luxury goods, depreciates the second you walk out of the store. Worse yet, you’re paying interest on an item that’s losing value over time. That’s like signing up for a treadmill and thinking you’re running toward wealth, only to realize you’re running in place—or worse, backward.

This is the kind of debt that keeps you up at night, wondering why your net worth isn’t moving up with your social status.

Neutral Debt: The Asset That Does Something for You

Neutral debt is trickier to define because it lives in that gray area between good and bad. Take a car, for instance. Cars depreciate in value as soon as you drive them off the lot—bad, right? Well, not so fast. A car also does something for you. It gets you to work, takes your kids to school, and allows you to build the lifestyle you want. Without a car, in most parts of the country, you’re stuck.

So, is a car loan bad? Not necessarily. It’s neutral. While your car is losing value, it’s also providing utility—a means to an end. The key with neutral debt is to manage it responsibly. Don’t splurge on the luxury sports car when the economy sedan will get you where you need to go. This debt won’t make you rich, but it also won’t ruin you—as long as you keep it in check.

The Bottom Line

The key to managing debt is understanding where your money is going and what it’s doing for you. Good debt appreciates, bad debt depreciates, and neutral debt serves a purpose. In the end, it’s all about how you leverage your borrowing power to build the life you want, without being dragged under by unnecessary financial baggage.

Because debt is neither good nor bad—it’s what you make of it.

Just like Scott Galloway would say, “Life’s a game. The smart play is knowing when to borrow and when to stop.”