Good Debt vs Bad Debt – When Do I Have Too Much Debt?

Debt is not inherently good or bad – it is how it is applied and managed that makes the difference. The key question is always: "Does this debt increase my net worth or provide future value?"

Good Debt

Good debt is typically an investment that improves your financial position over time. Examples include:

• Home loans: Property in desirable areas may appreciate over time or generate rental income.
• Business loans: A well-managed business can use loans for expansion and increased profits.
• Student loans: Qualifications unlock career advancement and higher earning potential.

Bad Debt

Bad debt describes anything that loses value immediately upon purchase, or for which you do not have sufficient cash flow. Examples include:

• Uncontrolled credit card debt: Maximum balances with high interest rates eat into your finances.
• Payday loans: These carry exceptionally high interest rates and usually worsen your monthly finances.
• Car loans: Although transport is necessary, vehicles are generally considered bad debt due to depreciation.

Five Warning Signs of Too Much Debt

1. You struggle to pay your monthly bills.
2. You rely on credit for basic expenses such as food and petrol.
3. You take new loans to repay existing debt.
4. Creditors contact you regularly about overdue payments.
5. Your debt-to-income ratio exceeds 40%.

What You Can Do

If you recognise one or more of these warning signs, it is time to seek professional help. AfriSkuld offers free assessments and can help you consolidate your debts into a single affordable payment. The goal is not just to pay off debts, but to build a healthy financial future.