Shift to Wealth | Issue 8
Good Debt, Bad Debt, and the Stuff In Between
Most of the personal finance world wants to sort your debt into two piles. Good debt on one side, bad debt on the other. Pay off the bad, keep the good, done.
That framework isn't wrong. It's just incomplete. And when it's incomplete it leads guys to throw extra money at a 3% mortgage while carrying a $6,000 card at 24% — because one felt responsible and the other felt normal.
There is one number that tells you everything you need to know about any debt on your list. The interest rate. That's it. Not the balance, not the monthly payment, not whether it feels like a "real" debt or a "smart" debt. The rate tells you what it's costing you every month you carry it, and that cost either justifies attacking it or it doesn't.
Everything else in this issue is just context around that question.
The Rate Is the Only Number That Matters
Every debt you're carrying has a cost. That cost is expressed as a percentage and it runs whether you're thinking about it or not. A $10,000 balance at 24% is costing you $2,400 a year to hold. A $200,000 mortgage at 3% is costing you $6,000 a year to hold. The mortgage costs more in raw dollars but the card is the one bleeding you out — because 24 cents on every dollar is gone before that money ever had a chance to do anything for you.
The question that actually matters for every debt on your list is the same one: can your money beat this rate somewhere else?
At 24% the answer is no. Nothing in a legal investment account is going to reliably return 24%. That debt wins every single month you don't attack it.
At 3% the answer is probably yes. The S&P 500 has returned roughly 10% annually over the long run. A diversified portfolio at 7% after inflation still beats 3% comfortably. That debt is cheap enough that the math may actually favor leaving it alone and putting the difference somewhere it can grow.
Everything in between is where it gets nuanced. That's what the rest of this issue is about.
What's Actually On Your List
By now you've got every debt written down. Balance, rate, monthly payment. Here's how to read what you're looking at.
Mortgage — if you have one this is probably your largest balance and your lowest rate. It's also attached to an asset that's building equity whether you're aggressively paying it down or not. The house is working for you. Treating this the same as a credit card is a mistake in the other direction. Aggressive payoff is a personal decision — some guys want the house clear before they walk out the door and that's a legitimate choice. Just go in knowing it's a psychological decision more than a financial one. With a pension covering your monthly nut in retirement the security that a paid off house was supposed to buy you is already accounted for from a different direction.
Student loans — rate determines everything here. Federal loans from ten or fifteen years ago may be sitting at 3-5%. Private loans can be significantly higher. Same framework applies — find the rate and it tells you where this sits on the priority list.
Auto loans — we covered this last issue. It's on the list, the rate matters, and when the loan ends the payment needs a destination or it disappears.
Credit cards — this is the fire in the building. Current rates are running 20-29% on most cards. Nothing on this list comes close. There is no financial argument for carrying a balance at those rates if there is any available path to attack it. This gets hit first, hardest, and as fast as possible.
Personal loans and lines of credit — usually somewhere between the auto loan and the card. Find the rate. It tells you exactly where it belongs on the list.
457 loans — worth a mention because guys on this job have access to them and they get used more than they should. The rate looks low on paper but the real cost isn't the interest — it's the compounding you lose while that money is sitting outside the account. We're going to go deeper on this one in Issue 14.
The Line Worth Drawing
Before the action step there's one thing worth saying plainly.
High rate consumer debt has no defense. There is no financial position, no investment opportunity, no savings goal that justifies carrying a $6,000 card at 24% while that balance sits there compounding against you every single month. If you have available cash, available income, or any ability to accelerate payments — this is where it goes first. Not the mortgage, not the student loan, not the 457 contribution debate. The card.
Below a certain threshold — somewhere around 5 or 6% depending on what the market is doing — the conversation genuinely changes. At those rates your money may do more work invested than it does paying down debt. That's not a reason to ignore it. It's a reason to think about it differently than you think about the card.
Everything in between is a judgment call that depends on your rate, your timeline, and your risk tolerance.
The math gives you the optimal order. What actually gets paid off depends on whether you'll stick to it. Issue 9 covers both.
This Issue's Action Step
Pull the list you built at the end of Issue 7. Every debt, every balance, every monthly payment.
Add one column. The interest rate.
Then sort it. Highest rate at the top, lowest at the bottom.
That's it. You now have a prioritized debt list and you didn't need a financial advisor to build it. The rate did the work.
Issue 9 takes that list and gives you the attack order — two strategies, the math behind each one, and how to pick the one that fits where you are right now.
Talk soon.
Written by a firefighter currently in DROP, sharing what I've found useful along the way. This is education, not financial advice. Interest rate comparisons and investment return assumptions are illustrative. Individual results will vary. Talk to a fiduciary advisor before making major financial decisions.