Debt Isn’t All Bad: A Quick Look at Student and Car Loans
When you hear the word “debt,” it probably doesn’t usually inspire warm, cozy feelings. But as you enter adulthood, it’s important to understand that not all debt is the same, and some types of borrowing can actually support your goals rather than hold you back.
This is important because many key milestones in early adulthood, like college, job training, and buying your first car, often require cash you don’t have on hand. Recognizing the difference between debt that advances you and debt that sets you back gives you confidence and control as you build your financial foundation.
Student Loans: Debt That Can Pay You Back
Student loans may seem overwhelming, especially with rising college tuition costs. However, student loans often act more like an investment in your future. A Princeton University study found that each year of education completed, from kindergarten through graduate school, can increase lifetime earnings by about 16%.
The key word is 'can,' because earning potential still depends on factors like your major, the job market, networking, and practical experience. Still, the workplace has changed. Technology, automation, and evolving job requirements mean that higher education or skills training often open doors that might otherwise be closed. In this way, student loans can be a tool to broaden your opportunities, not just a bill you'll have to pay later.
Car Loans: Are They a Practical Tool for Earning Income?
Shifting from student loans to car loans might seem random, but for many young adults, having reliable transportation is an essential debt-related expense. A dependable car is vital for getting to class, internships, or work, especially in areas with limited public transit. In this way, an auto loan can be seen as a “necessary evil,” not because it’s fun to incur debt, but because possessing a vehicle enables you to earn money and stay employed.
Therefore, the goal isn’t to avoid car loans altogether; it’s to borrow responsibly. Vincent and Trotter (2025) provide helpful advice for buying a car: research thoroughly, compare deals, understand your budget and credit score, get insurance estimates before purchasing, and be willing to walk away if something doesn’t feel right. They also warn against common mistakes such as visiting a dealership without pre-approved financing, focusing solely on the monthly payment rather than the overall cost, or signing paperwork that doesn’t match what you agreed to.
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How to Think About “Good” vs. “Bad” Debt
Ultimately, debt isn’t inherently “good” or “bad.” What matters is whether the debt helps you:
Increase your income
Expand your opportunities
Build long-term value (e.g., income or assets)
Solve a problem that improves your stability
Debt becomes harmful when it restricts your options, drains your finances with high interest rates, or fails to support your long-term goals.
Debt isn't something to fear or feel ashamed of. When you understand how student loans, car loans, or any other loans work, you can use them to support your future instead of complicating it.
Disclaimer: Creek & Lyells Financial Literacy Foundation does not provide financial services, nor does it recommend or advise visitors to open accounts or buy or sell securities. All content on this blog is for educational purposes only. While we strive to provide accurate, relevant, and well-vetted information, visitors should consult a licensed financial professional and carefully evaluate the risks of any financial decision before taking action.