'Good Debt' Can Go Bad: Experts Warn Borrowers — SkimNews
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- Bryanna Hambrick bought a three-bedroom, two-bathroom home in Columbus, Ohio in 2022, but her monthly payment hit nearly $1,200—about $200 more than expected after a property tax reassessment and a higher-than-anticipated interest rate—leaving her living paycheck to paycheck.
- Sheila Bair, who chaired the FDIC from 2006 to 2011, says she now avoids the 'good debt' label entirely, advising borrowers to presume against debt and ask whether it will actually improve their financial well-being.
- Bair recommends planning to live in a purchased home for at least five years to account for transaction costs and short-term price declines, and notes that mortgage companies consider what borrowers can repay—not what fits their budget.
- The 2008 housing crash is cited as a cautionary parallel: about 3.8 million foreclosures occurred between 2007 and 2010, per a Federal Reserve Bank of Chicago analysis, as subprime borrowers who didn't fully understand their mortgages defaulted when prices fell.
- Brad Klontz, a financial psychologist and CFP, identifies chronic debt mistakes including impulse borrowing, tying self-worth to big purchases, and overestimating future earnings—with the biggest he sees being buying the 'biggest, best house you can possibly afford.'
- Hambrick said she wishes she had focused on cost over features like hardwood floors and granite countertops, noting her home value has appreciated but less than expected and calling the purchase 'a bad decision overall.'
Why it matters: Millions of Americans take on mortgages and student loans assuming the borrowing is categorically 'good'—yet experts note lenders approve based on repayment capacity, not borrower budget, leaving individuals exposed to tax hikes, rate increases, and unexpected repairs. The 3.8 million foreclosures from 2007-2010 show how debt widely viewed as safe can become catastrophic when prices reverse and payments reset.
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