Bad debt includes:
- credit card debt
- car debt (this one’s a bit controversial because it depends on a lot of other factors)
Good debt includes:
- mortgage (with a 20% down payment or more)
- student loans
A lot of people don’t realize how counterproductive it is to aggressively pay off their student loans then turn around and finance a new car they can’t really afford. That’s trading good debt for bad debt.
As a general rule, don’t be in such a rush to pay off your good debt. But make sure you DO pay the balance on time each month! This is very important because if you don’t, it will hurt your credit score A LOT. And try to pay off your bad debt ASAP, starting with the one with the highest interest rate (APR).