Which scenario is an example of good debt?

Which scenario is an example of good debt?

• A. Borrowing to fund a course that increases earning potential
• B. Financing a luxury purchase on high-interest credit
• C. Using a credit card to buy daily groceries
• D. Taking a payday loan to cover rent

Answer: (B)

Debt that expands your future earning potential or builds an asset is considered constructive or “good” because it can pay off over time. Borrowing to fund a course that increases earning potential fits this idea: the debt is not for a immediate luxury, but for training that can raise your income in the future. The other scenarios don’t provide that same return. Financing a luxury purchase on high‑interest credit racks up costly interest with little to no future income increase. Using a credit card for everyday groceries is ordinary spending, not an investment in growth, and a payday loan to cover rent is an extremely expensive form of borrowing that worsens financial strain. So, investing in education to boost future earnings is the best example of good debt.

Debt that expands your future earning potential or builds an asset is considered constructive or “good” because it can pay off over time. Borrowing to fund a course that increases earning potential fits this idea: the debt is not for a immediate luxury, but for training that can raise your income in the future. The other scenarios don’t provide that same return. Financing a luxury purchase on high‑interest credit racks up costly interest with little to no future income increase. Using a credit card for everyday groceries is ordinary spending, not an investment in growth, and a payday loan to cover rent is an extremely expensive form of borrowing that worsens financial strain. So, investing in education to boost future earnings is the best example of good debt.