---
title: "How To Get Out Of (Bad) Debt"
url: https://modernmoneyninja.com/how-to-get-out-of-bad-debt/
description: "Good debt, bad debt and the parking-lot example: the debt explainer published on modernmoneyninja.com."
---

# How To Get Out Of (Bad) Debt

What the hell is bad debt? Isn't all debt bad?

## What The Hell Is Bad Debt? Isn't All Debt Bad?

Bad debt is debt that costs you money… It is something that you have to pay every single month. I know you must be thinking “Duhh!!!”… But hold on a sec.

Let’s say that you borrow money to buy a car for your personal use. Every month you have to pay that debt off, and this car although useful, doesn’t make you any money. As a matter of fact, it costs you extra money to keep it in good shape. This is bad debt.

As a general rule, any debt that you take and that doesn’t make you money in return is bad debt. But debt can be used strategically!

## Wait... How Can Debt Make You Money? What Is Good Debt?

Now, let’s take another example and say that you borrow money to buy a parking lot and that you rent it.

If on the one hand you have to pay $200 of debt every month, let’s say that on the other hand, the money that you are getting from renting the lot equals to $300 per month.

So on one side you are getting $300 and on the other side you are paying $200.

$300-$200=$100.

Your parking lot is being paid by the rent you are getting, and you are making an extra $100 on top of that. In this case, being in debt is making you money – this is good debt.

Now, this is an oversimplified example that doesn’t take into account taxes and unexpected events, but you get the idea.

## So Why Do So Many Financial Experts Advise To Get Out Of Debt?

Getting out of bad debt as much as possible makes sense. However, good debt is a powerful tool that can give tremendous leverage and rich people understand that.

The best example of that is real estate – fortunes are created in real estate by using other people’s money a.k.a debt.

Donald Trump once said: “Don’t forget, I’m the king of debt, I love debt”. And that was before he was elected president, no pun intended.

In conclusion, instead of getting out of debt altogether, learn to use debt to your advantage!

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