Not all debts are created equal. Learn how to balance good vs bad debt, opportunity costs, and the 50/50 rule for smarter financial decision-making.

Sometimes, what matters more is how you use your money.

“I should pay off my debt as quickly as possible.”
We’ve heard this since we were young. Debt has long been seen as something shameful—something you should eliminate as soon as you can. But is that really the case? Are all debts created equal?

After landing my first job, I immediately started paying off my student loans. The interest rate was about 4.5%. Each paycheck, a big chunk disappeared before I even had time to breathe. I was chasing the comfort of being debt-free—but at the cost of missing future opportunities.
That’s when I started to ask: Is debt repayment always the smartest financial decision?

Start by Separating Good Debt from Bad Debt

Finance author Bodo Schäfer once said, “The rich use debt to build assets.” I didn’t fully understand that until much later.

One of my roommates, for example, continued making minimum payments on his student loans after graduating from college, while automatically investing any leftover cash into S&P 500 ETFs. He chose to rent instead of buying a home, but his investment portfolio kept growing. A few years later, he had a sizable down payment saved—without rushing to pay off his low-interest loans.

Meanwhile, I was throwing every spare dollar at my debt, believing it was the “right” thing to do. I wasn’t investing. I wasn’t growing.
And eventually, I realized: Not all debt is created equal.

According to the Federal Reserve Bank of New York, the average mortgage rate in 2023 was 3.88%. In comparison, the S&P 500 returned between 7% and 10% in the same year. If your debt is tied to a low interest rate and long-term asset, rushing to pay it off might not be the most efficient use of your cash.

But there’s another kind of debt—the kind that builds up from Uber Eats, Amazon shopping sprees, and weekend drinks.
I’ve been there too. In my early twenties, I racked up credit card debt using a Chase Freedom card, thinking, “I’ll pay it off later.” But with an APR above 24%, even a $300 balance grew faster than I could manage.

CreditCards.com reports that the average credit card APR in the U.S. was 24.1% in 2024. That’s not just bad debt—it’s financial quicksand.

Don’t Pour Everything Into Debt — Follow the 50/50 Rule

It took me a while, but I eventually realized this:
Throwing every dollar at debt repayment only dried up my cash flow and left me exposed. That’s why I created my own personal guideline:

“Even if I have debt, I’ll never spend more than 50% of my income on paying it off.”

This is my version of the 50/50 rule. The remaining 50% is split like this:

30% for investing or opportunity funds (like recurring buys on Robinhood)
10% for short-term savings (I used Ally Bank’s high-yield savings account)
10% for personal development (like Coursera, Skillshare, or local workshops)

When I started budgeting this way, I finally felt some breathing room.
More importantly, I had the ability to act when a good opportunity came up.
JPMorgan Asset Management notes that people with liquidity recover much faster during economic downturns. I’ve felt that truth firsthand—cash gives you leverage when life is uncertain.

Focus on Strategy, Not Just Emotions

Like many in our generation, I used to think I had to pay off my loans ASAP just to “feel responsible.” But feelings don’t always align with numbers.

Vanguard reports that the S&P 500 has had an average annual return of around 7.1%.
If your student loan is under 5%, allocating some money toward investing might generate better long-term results than aggressive debt repayment.

That doesn’t mean you should ignore your loans.
But it does mean you need a decision-making framework rooted in your numbers, your timeline, and your goals.
That’s what financial decision-making should be about—not guilt.

Debt Is a Tool, Not a Moral Failure

I get it—debt feels heavy.
I remember the day I finally paid off my credit card. It felt amazing—like I had just bought back my dignity.
But that emotional win came at a cost: I’d sacrificed all my free cash to kill the debt, and in doing so, I missed out on a year’s worth of growth, learning, and flexibility.

Author Morgan Housel writes in The Psychology of Money, “Paying off debt quickly gives emotional peace, but it’s not always the most rational financial move.”
He’s right. Sometimes it’s worth tolerating a bit of discomfort today in order to build a better foundation for tomorrow.

So here’s the question:
Are you paying off debt because it’s the best move for your long-term goals?
Or are you doing it just to feel less anxious right now?

For me, the answer changed when I stopped seeing debt as shameful and started seeing money as a tool.
I don’t aim to be debt-free. I aim to be financially strategic.