How to Tell Good Debt From Bad Debt

So, you are paying a bank interest that is several hundred times the interest that the bank would pay you. When Don Henley, in the song “Gimme What You Got,” said, “’Cause a man with a briefcase/Can steal more money/Than any man with a gun,” you know where he was coming from.

Whether debt is good or bad depends on the numbers, and on what alternatives may be available.

All debt must be managed. For example, when you can switch to a lower rate — without fees so high they defeat the purpose — be sure to do so. That means refinancing your mortgage when the net total savings far exceed the fees involved. This mentality also means using low-cost balance transfers with low one-time fees, to get zero-interest periods, enabling you to pay off credit cards. Of course, to get these deals, you must have good credit by paying on time. Many people have trouble doing so because their credit card debt is so high.

As with any investment decision, you should look carefully at expected returns and opportunity costs of any kind of borrowing. Borrowing money can be a sound decision — for college, a house or things that are important to improving your life. The compulsion to borrow money to consume more goods and services than you can afford or actually need is how banks take your money.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Ted Schwartz, a certified financial planner, is president and chief investment officer of Capstone Investment Financial Group. He advises individual investors and endowments, and serves as the adviser to CIFG UMA accounts. Because Schwartz has a background in psychology and counseling, he brings insights into personal motivation when advising clients on how to achieve their wealth management goals. Schwartz holds a B.A. from Duke University and an M.A. from Oregon State University. He can be reached at

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