12 Times When Going Into Debt May Be Worth It And 6 Times When It's Probably Not

Borrowing money isn't *always* a bad thing.

Being alive can be expensive, and sometimes debt is simply unavoidable.

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In fact, according to data from the credit bureau Experian, the average American had $92,727 in debt in 2020 — a number that typically includes a mix of loans, credit card debt, mortgages, and student debt. 

But experts say some debt can actually be good — which begs the question: What's the difference between good and bad debt?

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The answer is complicated. But Neale Godfrey, a financial literacy expert and author who works as the chairman and president of the Children's Financial Network, said:

"[The] real answer is it depends. It depends upon your wishes, your financial circumstance, and what you are willing to forgo in order to get what you want. I will answer giving my opinion, for myself. Debt is a tool that can be used for good to help you reach your goals, like education, buying a home, or using it for medical expenses. ... Going into debt to buy things that will not give you long-term joy or enhance your life is not good."

Here are 12 things that can be worth going into debt for and 6 that are probably not worth it.

According to Godfrey. Depending on your personal needs and situation, your answers may be different. Definitely take your own situation into account, and do what's best for you. At the end of the day, you're the best judge of whether or not a debt is worth it for you.

1. Getting a college degree.

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It's not uncommon to hear college graduates talk about the burden of their student loan debt — but many people are able to make more money with a degree. So when is it worth it, and when is it a waste of money? In most cases, Godfrey says it pays to fork over tuition for an education.

"You are building a future for yourself, and BTW, college graduates earn more money, so you will get back your investment in yourself," she said. The same goes for people interested in obtaining a master's or doctorate degree. Godfrey says it's well worth the money if your education helps you fulfill a dream or enhances your life.

Godfrey's verdict: Good

2. Buying a car.

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Godfrey starts off by saying "a car is not an investment." You need to think of it like a utility — something that makes your life easier and more enjoyable, not something that will make you money. 

She confirmed that going into debt to buy a car is only considered good debt "if it’s a car that you can pay for over a few years" and that it's "bad if you are buying a car above your means. ... It depreciates as soon as you buy it — it can get crashed; it needs maintenance."

Godfrey's verdict: Good, if you budget for repayment

3. Purchasing a home.

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Even people who try to avoid debt often have to borrow money to buy a home. And that's because, Godfrey says, "No one can save enough money to buy a home. Mortgages that you can afford make a lot of sense. But live within your means."

So getting a mortgage to buy a home can be a great decision, but don't get up to your neck in debt to borrow money for a home that you can't really afford.

Godfrey's verdict: Good

4. Buying a vacation home, a condo to Airbnb, or land to build an epic treehouse on.

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Godfrey says these sorts of purchases can be tricky. If you have money in the bank (and money coming in), buying additional real estate can be a good investment and a good reason to borrow money. But if you're overextending yourself and the real estate market crashes, for example, you could end up in trouble. 

"It’s tricky to buy these types of things as an investment, unless you have a lot of money. If you need to sell it, you may take a bath," said Godfrey.

Godfrey's verdict: It depends, but probably not

5. Buying a boat.

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Like cars, boats are not usually considered an investment. In fact, they're often called “holes in the water, into which you throw money.” If you can afford it and you feel that having a boat would enhance your life, go for it; otherwise, Godfrey suggests that you "lease a boat in the summer and not be tied down to maintenance of your boat."

Godfrey's verdict: It depends, but probably not

6. Booking a vacation.

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Everyone needs a vacation, but there's a big financial difference between a yacht trip in Greece and a camping trip to the Grand Canyon. 

"For me, vacations build memories. But you don’t have to go crazy. There are lots of reasonable vacations. If you borrow, make sure you pay it back quickly…before the next vacation," said Godfrey.

Godfrey's verdict: Good, in moderation

7. Paying off other debt you already have.

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Godfrey does not recommend going into debt to pay off another debt unless "you can borrow at a much lower rate to pay off high-interest debt." For example, many balance transfer credit cards come with a low-interest or interest-free initial period that you can use to pay down debt faster, or you might use a low-interest personal loan to pay off a high-interest credit card. If you decide to go for it, she recommends you "try to pay off the most expensive [things] first." 

Godfrey's verdict: Bad, unless it can save you money

8. Buying new furniture or items for your home.

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You won't want to redecorate your apartment every year, but because furniture and home goods are "longer-term items that you will use for years," Godfrey says, "It’s OK to borrow." But again, moderation is key. Financing a comfy new mattress can be a great life upgrade, but unless you've really budgeted for it, you probably don't want to take out debt to redecorate your whole home.

Godfrey's verdict: Good, in moderation

9. Splurging on new clothing and accessories.

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It's all too easy to dole out money on the latest styles or fancy shoes and watches, but going into debt to stay fashionable or impress your friends is never a good idea. Even though the amount of debt may be small, it builds, and Godfrey says, "You will be paying for these things for years if you only pay the minimum on your cards."

Godfrey's verdict: Bad

10. Starting a business.

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Starting a new business can be risky, but it can also provide some serious rewards (including financial rewards). For this reason, Godfrey says taking on debt like a small business loan can be a smart move after you've exhausted your own savings and tapped friends and family for help.

Godfrey's verdict: Good 

11. Making a big move.

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If you want or need to move and don't have the cash to pay for it, Godfrey says you can borrow money without worry. To keep that debt from sticking around, she suggests that you "make sure the payback is built into your budget."

Godfrey's verdict: Good 

12. Picking up a new TV, computer, phone, or some kind of technology.

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This one can be tricky. If you need a new computer or phone for work or school, going into debt to buy them may be worth it. But on the other hand, you don't want to go overboard and pick up the latest TV just because. 

Godfrey says tech can be worth going into debt for "if you really need these and have a way to pay back the loans." Otherwise, make do with what you have. Is the TV you currently have really all that bad?

Godfrey's verdict: Good, if you really need it

13. Buying a wedding ring or paying for a wedding.

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If you don't have the money to pay for a giant rock or a giant wedding, Godfrey says you'll need to get creative because borrowing money isn't worth it. 

For the former, she says going into debt will ensure that "you will start your married life off in a hole. Buy a ring you can afford." And she suggests that people without the money in the bank to throw their dream wedding should "get creative" to come up with ways to save money.

Godfrey's verdict: Bad

14. Having a baby and starting a family.

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Having a baby can be expensive (over $10,800 on average!), so you might have to borrow money if you find out you're pregnant or if you're exploring fertility treatments or adoption. Godfrey says that going into debt is fine, "But, again, make sure that you can pay these costs back quickly." She also recommends that parents start putting away some savings for their kids' college as early as possible.

Godfrey's verdict: Good 

15. Paying for medical care.

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Medical costs can add up quickly, and you might have to take on debt for getting care. If you don't have the cash, Godfrey suggests trying to "work with the hospitals to see if they can give you some relief, or the drug companies." By the way, we recently rounded up some medical bill negotiation tips that can help you bring your bills down.

If all else fails, debt may be your only option, but it can really help to try and talk your bills down first.

Godfrey's verdict: Good 

16. Paying for a funeral.

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Paying for a funeral is never a fun thing to borrow money for, but it might be your reality at some point. And if it is, do what you need to do (including going into debt to make it happen). Just keep in mind you can "keep it simple. People will understand," said Godfrey.

Godfrey's verdict: Good 

17. Preparing for the holidays by buying gifts, decorating, and hosting parties.

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It can be tempting to go all out over the holidays, but this is one thing Godfrey says is not worth going into debt. 

"One year of debt runs into another. Get creative and start to give non-monetary gifts. A gift should say, 'I love you,' not, 'I spent a lot on you.'" If you're tight on cash, she says you could "pool money for gifts, set gift limits, do potluck dinners, etc."

Godfrey's verdict: Bad

18. And finally, little pleasures like grabbing takeout for lunch.

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Little things like grabbing lunch at work might make your morning feel a bit easier, but if you don't have the money to pay for it upfront (or have other debt stacked against you), you'll likely be better off brown-bagging it than racking up debt. 

Godfrey's verdict: Bad

What do you think? Is there a situation where you'd say the opposite? Share your thoughts on getting into debt in the comments below.

And for more money tips and tricks, check out the rest of our personal finance posts.