Ask Sallie: Is All Debt Bad Debt? (Video)

By Sallie Krawcheck

Women hold more student loan debt than men. We pay more interest on our credit cards, too. Yep, the gender debt gap is real. But does closing it mean we’re supposed to pay off every debt we owe before we get started closing the investing gap for ourselves? If not, which debt’s the “bad debt” we need to pay off ASAP? Sallie breaks it down.

Sallie’s answer:

There can be some debt that's considered good debt. Think student loan debt. Student loan debt, you can get a great education, you can get a better job. It's got to be paid down, but it doesn't at a rate of 4% or lower, it doesn't have to be paid down before you begin to invest in a diversified investment portfolio.

Bad debt, we think that's anything with an interest rate above 7, 8, 9%. Particularly when you get to credit card debt, which can have much higher interest rates.

You really shouldn't be investing until you get that debt paid off because for every step forward you may make with investing or saving, if that interest rate is higher, it's going to be draining away on it.

So pay off the things which have the higher interest rate. Debt in between 4% and 7 or 8% — absolutely pay that debt on time, but that debt can stay outstanding.


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Sallie Krawcheck

Sallie Krawcheck is the Co-Founder & CEO of Ellevest. Her life’s mission is to help women to reach their financial and professional goals.