The question seems to always come up: is there such a thing as ‘Good Debt’ vs ‘Bad Debt’. A primary residence is usually considered Good. A credit card is considered Bad. Where is the truth? Is there a line?

The answer, unfortunately is always subjective. Every person will have a different tolerance for debt and what they can leverage or handle. Since here at Mini Thoughts we like math over feelings lets look at my personal debts objectively. We already covered the math of Debt Snowball vs Debt Avalanche (spoiler alert, avalanche wins mathematically).

Funny enough, I didn’t intentionally pick the 401k Loan first because the picture says Loan number 1, but it makes for a good entrance. The first thing to remember about debt is everyone has a reason for having it. Too many bills at once, got sick, got laid off, put an addition on a house and moved your family multiple states… ok that last one was me.

To assist with our renovations, I leveraged my 401k Loan options. Most employers programs will offer this. Interest rates can vary and fees can vary. The thing most people don’t realize is the interest is paid back to you. $50,000 loan paying $1115 per month for 60 months should generate almost $12,000 in interest at 9.50%. The good news is I keep all of that, the bad news is lump sum paying this down has to flow through payroll not a direct payment from me to the 401k company.

Now loan #2 is a travesty. A credit card that is way too high and charging me 20.50% interest. The highest this card hit since our move over a year ago was $19,543, June 2025. Hey I promised honesty and transparency. Life was interrupting our life goals. We had to buckle down and reclaim our budget, outside for Groceries. Total interest since last time card was at zero: $3453.27. That is a HAIR ON FIRE DEBT EMERGENCY!!!

Now Miniwing, why are you writing a blog about passive income and funneling money into dividend funds while struggling against a 20% interest behemoth? Well probably because I’m stupid, but I have my focus on paying it down. The vast majority of my excess income has been funneling to this debt, and you are all correct. Math and my own advice says this should be paid down before any level of taxable investing should be occurring. Maybe this article will change my own mind. I’ll have to write a monthly bill post to discuss why that balance struggles so hard, because points fund the snowball and payments from a checking account pay nothing.

The third debt is my wife’s car. Now I am blessed that moving and selling our house allowed us to be mortgage free in our current location, so currently this is the last of our debt drains on our income.

$500 per month in payments. 39 months remaining till paid off without extra payments. That should be roughly $1,530 more in interest. So what is good debt and bad debt? I can understand the power of home ownership and how that can be a good debt, but I think realistically a good debt is the going to be debt with an interest rate lower than what your investments can return. Since the most stable and lowest returns are usually around 4%. (HYSA, SGOV, etc.) I think the most frugal minded way of thinking is any debt below 4% is probably worth not over paying so that you can get your money making more money faster.

So what are we fighting against right now? $65,906.14 in total debt. Eating Roughly $5000 in income per month that should be funneling to investments. $60,000 in QQQI with Drip would have been $71,178. from Feb 25 to Feb 26. $60,000 in VOO would have been $70,692. That’s the entire balance of the 20% interest credit card in dividends/growth. So how do we avalanche this so we can get back to growing our snowball?

Loan	Balance	Interest	Pay off Priority
Credit Card	$11,000	20.50%	1
401k Loan	$37,000	9.50%	3
Car Loan	$18,000	4.990%	2

Obviously the highest priority is the 20% interest loan. It’s killing me with the interest. Every cent I have should be heading to pay this off. Not the snowball, not dividend funds. Nothing is costing me as much money in lost interest as the credit card. Now the debt avalanche is 100% mathematically superior, but you’ll notice that my 401k loan is listed as 3rd priority. I covered my 401k allocation as S&P 500 100%, following my IPS.

The reason is 2 fold, it’s very hard to update my loan payments with HR, and the interest goes back into my account anyway. The problem is over the last 5 years S&P 500 has had total returns of: 2025: +17.52% 2024: +24.60% 2023: +25.90% 2022: -18.37% 2021: +28.29%. This is significantly higher than my 9% interest, secondly I can update my HR contributions more easily when I roll the car payment into the 401k pay off.

So what’s our end game math here? If I can continue to flow $3400/m at the Credit Card.

Loan	$ per month (snowball)	Time to Pay Off (Total)	Interest
Credit Card	$3,400	4 Months	$418.66
Car Loan	$500 + $3,400	9 Months	$467.41
401k Loan	$1,115 + $3,900	16 Months	$3,303.31
Total	$5,015	16 Months	$4,189.38

In 1 year and 4 months we’d clear all the debt and pay barely more interest in 16 months than the last 12 months alone of the credit card. We saved roughly $1,000 in interest on the Car Loan. The 401k Loan at current balance would create $6,000 in interest so we saved: $2,700. That’s almost $4,000 in interest saved.

So, where’s the line? For me, I think the line should be 5% or lower; any interest above that should prioritize loan payoff over investing. Math wise it seems very solid. That being said, psychologically I think there is a lot of value in just clearing the debt table.

What this means for the blog though…is not much. I’m still using Credit Card points to buy investments for the snowball. I’m also still doing Swagbucks and squeezing dividends from the current portfolio. The only difference being I have a visual plan with zero guesswork to motivate me on clearing out these pesky debts.

~~Miniwing~~
Stoic, Parent, Investor, Wordsmith