Good Debt or Bad? Is There a Difference and Does It Matter?

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November 9, 2016 by Mark Hammerstrom

“I can get no remedy against this consumption of the purse: borrowing only lingers and lingers it out, but the disease is incurable.” —Falstaff from Henry IV (pt 2); William Shakespeare.


United Credit Service is in the business of collecting ‘bad’ debt on behalf of our clients. In fact, in our more than 65 years in business we have become very good at it.  That is a certainly making something good out of something bad.

In most cases, however, collecting a ‘bad debt’ from a customer of one of our clients is not a singular event. In fact, a single debt we may collect is often only a small part of the larger piece of the ‘bad’ debt a person may owe to many other companies.  Thus the importance of credit scores as a bellwether of a person’s credit worthiness.  While increasingly under scrutiny, credit scoring is still an important tool for businesses to use when granting credit.  For all of us it is also very important that we understand what affects our credit score and how we can maintain a good one.

Importantly, debt in and of itself is not a bad thing. Virtually all of us carry some debt, and those that don’t may not be managing their financial lives very well.  Debt is a financial tool. When used properly, and with intelligence, it can be a very powerful tool to build a very good life. Yet, every day we see the aftermath of ‘debt gone wild’ and the financial and personal carnage it can leave behind.

Writing for CNBC, Deborah Nason, in an article entitled “Plenty of confusion about good debt vs. bad debt” discusses key differences between the two. Understanding the ins and outs of debt are critical to our financial health, and she points to the 2015 study by NerdWallet which reports the average U.S. household carries …” $15,310 in credit card debt and $132,086 in total debt.” And that is an AVERAGE household.

Many times debt problems are simply the result of consumers not understanding the cost of borrowing and how their borrowing costs can change unexpectedly over time. For that matter many of us lack a basic understanding of the things that impact our credit score and good credit standing.

One goal she suggests is that we all strive to clearly understand what goes into our credit score and what we can do to optimize it. One thing, in particular, is to know our credit limits.

Nason quotes certified financial planner Kathryn Hauer of Wilson David Investment Advisors as suggesting consumers keep their debt ratios (that is, debt to total available credit) to under 30 percent. Even if you pay off your credit card debt each month, more than that can start to adversely affect your credit score.

She also quoted Shawn Tydlaska, CFP, founder and CEO of Ballast Point Financial Planning regarding some common misconceptions about what impacts our credit scores (quoting now):

  •  Myth: You need to carry a balance on your credit card. The balance does not affect a credit score, but a healthy payment history does.
  • Myth: Checking your credit score will hurt your score. It is only the “hard” inquiries [e.g., applying for a new line of credit] that affect credit scores.
  • Myth: Your income affects your credit score. Income affects the ability to obtain a new line of credit or a favorable interest rate, not the FICO score.
  • Myth: Your spouse has good credit, so you don’t need to worry about yours. It is important to improve one’s own score, especially when applying for loans where both spouses’ credit is considered.
  • Myth: You don’t need a credit card. By not having a credit card, you don’t have any credit payment history.


So, ideally we should all maintain a healthy amount of ‘good’ debt and minimize the bad if for no other reason than it can help and even improve our financial health. However, poor or negligent understanding of credit limits, terms and conditions can lead to serious financial consequences.

Every day United Credit Service helps our clients maximize their financial health. Can we help you too?

Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing effective, customized one on one management and recovery solutions for our business partners. Visit our website at, call 877-723-2902 or check out our YouTube video.



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