Do You Have More Good or Bad Debt?

Understanding the difference and how it impacts your financial future

Not all debt is created equal. Some borrowing can move you toward long-term goals; other debt quietly erodes your cash flow and credit health. Knowing the difference helps you decide what to pay down first—and how to borrow smarter going forward.

Good debt vs. bad debt (in plain English)

Good debt finances something that can grow your wealth or earning power; think education, select home improvements, or a mortgage on a home you can afford. Bad debt is borrowing for things that lose value quickly or carry high interest (e.g., credit cards, payday loans), especially if balances linger month to month. That’s the simple, consumer-protection view used by Canada’s Financial Consumer Agency.

A few Canadian nuances: mortgage interest on your principal residence is generally not tax-deductible (unlike the U.S.), so the benefit of mortgage debt comes from owning a suitable home and building equity over time, not from tax breaks.

Why the mix of debt matters

Your borrowing mix affects both your cash flow and your credit profile:

1.         Monthly affordability: Lenders look at debt-service ratios: including Total Debt Service (TDS) to gauge how much of your income goes to housing plus other debts. High-interest consumer balances can push TDS over the typical 44% guideline for insured mortgages, limiting what you can borrow.

2.         Credit scores: Using a lot of your available revolving credit (a high credit-utilization ratio) can lower your scores; many experts suggest keeping utilization around or under 30%.

What counts as “good” in real life?

·       Education: Student loans that lead to higher earnings can be “good” and the federal government permanently eliminated interest on Canada Student Loans, reducing carrying costs. (You still repay principal.)

·       Home & value-adding upgrades: Sensible mortgages and renovations that improve efficiency or resale value can be positive—so long as payments fit your budget and TDS.

How to tilt your balance toward “good”

Prioritize high-interest balances. Channel extra payments to credit cards and payday-style debt first; even small wins here improve cash flow and credit utilization.

Automate minimums, then stack. Automate all minimums to protect payment history, then add a recurring top-up to your highest-rate debt until cleared.

Right-size your credit limits. Avoid closing your oldest card if it will spike utilization; consider a limit increase (used responsibly) to keep the ratio lower.

Borrow with the end in mind. Before taking on new debt, ask: will this increase my income, reduce costs, or build equity? If not, it’s likely “bad.”

A healthy financial picture isn’t “no debt” it’s the right debt, in the right amount, for the right reasons. Keep high-interest balances low, protect your utilization and payment history, and make sure any new borrowing supports your long-term goals. Curious how your current mix affects mortgage options? Reach out today and we’ll review your ratios, credit profile, and budget to build a plan that moves you toward the home and future you want.