Plan the month · · 7 min read
Good debt, bad debt: five questions before you borrow
Not all debt is alike, and not every "good" debt is good for you. Five questions people ask before borrowing, to test what a loan does to the month.
A car loan, because without a car there is no getting to work. A renovation loan, because a renovation adds to the flat's value. A study loan, because that is an investment in yourself. Three loans, three good stories. And one month that got crowded.
Someone once told you there is good debt, the kind that buys an asset, and bad debt, the kind that buys consumption. Since then every loan arrives with a story explaining why it belongs to the good kind. "A mortgage is good debt, so anything to do with the home is fine." "A car is a need, not a luxury."
There is also the opposite pole, familiar to anyone who grew up in a home where "loan" was said in a whisper: "All debt is failure." That rule does not help either. It just swaps arithmetic for fear.
The "good debt" label, and what it spares you
Part of you wants the thing now: the car that does not break down, the new kitchen, the degree. From there it is a short step to looking, honestly, for the reason this debt is the good kind. The label does one more small favour: it excuses you from the arithmetic, and from the conversation with your partner about what this does to the month.
Part of you would rather have a simple rule you can trust, something that says yes or no without a fresh debate every time.
Wanting to live now and wanting certainty are both entirely reasonable, and there is a way to honour both: not a rule that decides for you, but fixed questions you answer in writing.
Good debt and bad debt: what the definition misses
"Good debt" describes what the debt buys. It does not describe what the debt does to your month. A mortgage is usually the first example of good debt, yet a mortgage whose payment the month cannot carry is not good for you, even if the flat gains value. And a small loan for a car repair, with a payment that fits comfortably and ends within a year, can be an entirely sound decision.
Why is that so hard to see at the moment of deciding? Not because of a weakness of yours. The economist David Laibson described in 1997 what is known as present bias: we tend to favour an immediate benefit over a future cost, even when we know the cost is larger. A loan is built precisely on that gap. The pleasure comes today; the payments come later. That is why a rule set in advance, in writing, works better than willpower in the moment.
One more figure from the past year: according to Mako, all-purpose loans secured on a home rose 84% in a year (March 2026 against March 2025).
A trial month before you sign
What people describe as a way to test it: answer five questions in writing, and live for one month with the payment before signing. No "good debt" label deciding for you, and no blanket fear of all debt. The decision is yours.
These questions also fit a loan you already have. They are not a test you can fail. They are a way of looking.
When to take a loan: the five questions
Five questions before a loan
0 of 5 done
1. What it buys
Consumption, or something that holds value or earns income? That is the question the old definition asks, and it matters. It just is not enough on its own. A car keeps some of its value and a holiday does not, and the next questions apply to both.
2. The monthly payment against what the month can carry
This is where debt meets life. The payment enters the month as a fixed expense, next to rent and electricity. The question is not "can we pay it" but what is left after paying.
In AlphaHome: add a temporary fixed expense equal to the estimated payment and watch what happens to "Free to spend until the end of the month" on the dashboard, which counts fixed charges in full from day one. At the end of the trial month, delete it, so it does not stay in your records as an expense that never happened.
3. The total cost
Not just the rate, but how much you repay in total by the last payment. All-purpose loans have a documented range: according to Loan4me's loan comparison and the Moneyplan (חתול פיננסי) guide, an all-purpose loan is priced in 2026 between 5.5% and 16% a year, depending on the lender and the borrower. For a car, studies or a mortgage there is no documented range here, so ask the lender what the total repaid will be. Consumer explanations of credit and its cost are also on the Bank of Israel's site. The full calculation has its own article: the true cost of an all-purpose loan.
In the next block, 9% is an assumption for the example only, within the quoted range, not an offer. The stress line shows what happens to the payment if the rate is variable and rises two points.
What a 60,000 ILS loan does to the month, at an assumed rate
Monthly payment
₪1,246
₪14,730 in interest over the whole loan
At 11% the payment would be ₪1,305
The rate here is an assumption for the example, not a forecast.
4. What happens if an income stops
A long illness, a layoff, unpaid leave, a business that stalls. If one income stops for three months, does the payment still fit? The question is not meant to frighten. It is meant to tell you in advance whether there is a cushion to hold it.
5. The alternative: wait and save
How many months would it take to save the same amount, or most of it? Sometimes the answer is "two years, not realistic". Sometimes it is "ten months, and then a much smaller loan".
Months to the amount without a loan
Time to the target
30 months
In AlphaHome: in the savings plan, add the purchase as a large future expense with a date, and the plan works out the monthly deposit needed to fund it on time, together with everything else in the plan. That is the alternative to a loan for the same purchase, in one number.
When the loan is already taken
You already have a loan that, looking at it today, seems "bad". There is no blame here. The decision was made with the information and the pressure of the time. What people in this position describe: record it, know when it ends, and consider not adding another loan on top until then. The decision is yours. If there is more than one loan, the order of repaying them has its own article: which debt to repay first.
The trial month showed the payment does not fit, but the need is real. That is information, not the end of the road. What people in this position describe: look for the smaller version of the same need, a lower amount or a different term, and run the five questions again. The decision is yours.
You disagree at home. Written answers turn an argument about feelings into a conversation about numbers. Today: each of you answers alone, then compare.
The story is good; the month decides
If every loan only has to pass the story test, the month will probably keep filling up with payments: the story is almost always good, and the arithmetic stays on the side.
Five questions on paper, one trial month, one conversation at home about the same numbers. That is all, and it is not little: a loan that passes all three can be a sound decision even if its label is "bad", and a loan that fails them will not be rescued by a "good" one. What stays on the table is not whether the debt is good, but what it does to your month.
This week, if a loan is on the table: answer the five questions in writing, record its monthly payment as a temporary fixed expense for one month before deciding, and delete it at the end of the month.
Do one thing this week
Open AlphaHome, record this month's income and fixed charges, and see how much is really free to spend. Everything in this article starts from that number.