4 types of debt that can be good for you

Not all debt is bad. In fact, there’s debt that can be good for you and help you build wealth.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Not all debt is bad. In fact, there’s debt that can be good for you and help you build wealth. But while good debt can help you build your credit, bad debt does exactly the opposite.

Here are some kinds of debt that can be good for you.

1. Mortgage loan

Taking out a mortgage is one of the best debt decisions you might ever make. Mortgage loans come with low interest rates and potential tax advantages. Plus they’re a great way to improve your credit score and build wealth. A mortgage is good debt because it either gets you a place to live or a place to rent out as a source of income. Either way, it’s something that will grow in value as the years go by.

Monthly mortgage payments are often lower than the amount you would pay in rent too. You can use the money you save, even if it it’s only a small amount, to invest and build wealth even faster.

2. Business loan 

Another type of debt that can be good for you is a business loan. Whether you’re using the loan to start or grow your business, positive use of credit can be a smart investment. For the debt to be good, however, you need a well-developed business plan so that the loan actually helps to increase profits.

Business loans are especially good because they’re geared towards growing the value of something. It’s a debt that should, over time, lead to more income.

3. Student loan 

Student loans have a bad reputation, but they are an investment in your future. If you cannot afford to pay for your university education on your own, you will need to take out a loan. Just like with business loans, a student loan can contribute to an increase in career opportunities and earning power. According to the gov.uk website, university graduates earn £10,000 more per year than people who don’t have a university degree.

In addition, student loans have a low interest rate when compared to other forms of debt. As long as the payments are affordable and you don’t default, this is one type of debt that can pay off.

4. Credit-building loan

A loan that helps to build your credit rating can also be good for you. For example, credit card debt is usually considered bad because of its high interest rate. But if you pay off the card balance in full at the end of each month, you’ll build your credit rating and never pay interest. You can also look into getting a car loan to build credit. Just shop around for a low interest rate and don’t buy a car you can’t afford.

If you recently went through a bankruptcy or are trying to build your credit rating for the first time, this type of loan can help. Without a good credit score, you are considered a bad risk, and obtaining a business loan or a mortgage might not be possible. You’ll have to start with smaller debt and getting a credit card or a small car loan could be a good way to do it.


Whether you have good or bad debt, remember that the key to managing it properly is to focus on paying it off. Even the best debt can be bad for you if you default and end up with added fees or the involvement of a debt collector.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

MyWalletHero, Fool and The Motley Fool are all trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the FCA (FRN: 422737). In this capacity we are permitted to act as a credit-broker, not a lender, for consumer credit products. We may provide information on consumer credit, savings, insurance, loans, mortgages and investment products and services, but will not provide advice, or confirm the suitability of any product or service, for your specific circumstances or requirements, neither will we arrange these products on your behalf.

The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers.

More on Personal Finance

Young black colleagues high-fiving each other at work
Investing Articles

If I’d invested £1k in Marks and Spencer shares at the start of 2023, here’s what I’d have now

Marks and Spencer shares have massively outperformed the UK stock market year-to-date. Can this form continue?

Read more »

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »