Let’s be honest: in Nigeria, the word debt often carries a heavy, negative tone. For many professionals, it brings to mind friends dodging loan sharks, salary advances that disappear before the 15th of the month, or even the dreaded monthly debit alerts from digital lending apps. But in truth, not all debt is the same.

In fact, there’s a kind of debt that could help you build wealth, grow your business, or secure a better future. It’s called good debt—and understanding how it works could be one of the most powerful money decisions you ever make.

So, What Exactly Is Good Debt?

Good debt is any borrowed money that is used to purchase something that increases in value or generates long-term income.

Think of it as an investment. You’re borrowing money now, but it has the potential to pay you back with interest in the future.

It’s like planting maize during the rainy season. You might borrow to buy seeds, fertilizer, and hire labour, but come harvest time, you’re likely to make back more than what you put in. That’s the idea behind good debt. We’ve also broken this down in our guide on how to get rich using good debt—a must-read for Nigerian professionals.

Examples of Good Debt

1. Student Loans

In many parts of the world, student loans are a common way to finance higher education, particularly for postgraduate programs. While the idea of debt can feel daunting, education loans aren’t necessarily bad; especially when they fund degrees that significantly enhance earning potential. 

For example, if a master’s degree or MBA results in a considerable salary increase, the loan can be seen as a strategic investment. The key is to borrow with a clear repayment plan and a realistic understanding of the return on investment.

2. Business Loans

This is a classic example when comparing good debt vs bad debt—a business loan used strategically can multiply your income many times over.

Let’s say you’re an established business owner in need of extra funds to scale up your business, and you take out a ₦2 million loan to do this. If that loan helps you generate ₦10 million in revenue over the next year or two, that’s good debt in action.

3. Real Estate Mortgages

Owning a home is a major financial goal for many, and some companies or financial institutions now offer housing loans or staff housing schemes to make this possible. 

In fast-growing cities like Lagos, Abuja, or Port Harcourt, using these structured payment plans to acquire property, whether to live in or rent out, can be a smart financial move. 

If the property increases in value or generates regular rental income, you won’t just be paying for a house; you’ll be building long-term wealth in the process—a way better deal than paying rent for years with no ownership in sight.

Okay, But What Makes Debt “Bad”?

Bad debt is money borrowed to buy things that lose value or don’t bring in any income. Think of high-interest loans used to:

•  Buy the latest iPhone (that depreciates instantly),

•  Fund lavish weddings (with little ROI),

•  Or take a vacation to Zanzibar (which is nice, but not an investment).

These types of debt don’t help you grow financially. Instead, they keep you in a cycle of consumption and repayment, often with high interest rates.

How to Know If a Debt Is “Good” for You

Before you take that loan, ask yourself:

1. Will this debt help me make more money in the future?

2. Can I realistically afford the repayments without stress?

3. Is this purchase a need or just a want?

4. What’s the interest rate? Is it competitive?

4. Is there a clear repayment plan?

If the answers to those questions are positive and well thought out, you might just be looking at good debt.

These questions tie closely to personal finance principles. Explore the 5 key areas of personal finance to guide your decisions.

Final Thoughts

To sum up, your financial journey is like building a house. And debt can be the scaffolding that helps you reach new heights, that’s if used wisely. 

Whether you’re a Nigerian professional trying to manage your finances and build wealth in an economic environment such as ours, understanding the difference between good and bad debt is super important. (Check out our blueprint for building wealth the smart way.)

So, the next time someone tells you “all debt is bad,” you’ll know better. 

Bravewood provides Nigerian professionals with low-risk, high-return investment products, licensed by the Central Bank of Nigeria.