To some people, all debt is bad. I will say the most common thing I have seen with wealthy individuals that we work with, and we manage about $145 million, is that none of them have debt, good or bad. But for the rest of us, good debt is any debt that you can use to deduct after taxes -- like debt on a secured property or your first mortgage. It's good debt because you have some tax benefits to owning a property or your primary residence and putting it on credit. Bad debt is the debt for which you are really not getting any deduction and all it is doing is taking money out of your pocket. These are things like your credit card debt. Quite frankly, if you are letting your credit card balances get out of whack and you are paying 10 or 12 percent and you are making that minimum payment, it is going to be an eternity before you pay it off. If you realize that, then you can pay that credit card debt off at a guaranteed rate of return. That is huge! Any money manager would die to give you that rate of return on an investment. But since there is no deduction, there is no benefit to that debt whatsoever. So if you have unsecured debt, credit card debt, auto loan debt- that is really what we call "bad debt."
