Bruce Helmer and Peg Webb
As we turn the calendar to a new year, many people revisit familiar resolutions like getting healthier, getting organized, or simply getting a fresh start. But one resolution deserves a place at the top of the list in 2026: reducing or even eliminating “bad debt.” And that begins by understanding that not all borrowing is created equal.
We’ve all heard that famous advice from Hamlet, “Neither a borrower nor a lender be.” In the real world, however, few Americans can pay cash for a home, a car or an education. Some forms of debt are not only unavoidable, but they can actually support long-term financial stability. The key is knowing the difference between efficient debt that improves your financial life and inefficient debt that quietly drains it.
And with the state of borrowing today, the stakes are higher than they’ve been in decades. Back in 2015, total U.S. household debt was about $11.9 trillion. Ten years later, it has climbed to $18.6 trillion, roughly a 50% increase. The average American household now carries around $105,000 in total debt. Credit card APRs hover above 22%, mortgages sit near 6%, and auto loans generally have become more expensive. And the average federal student loan borrower today carries just over $39,000 in outstanding debt.
In short: the cost of borrowing has significantly changed. Our financial habits need to change too.
Good debt vs. bad debt—reframed for today
Good debt helps build long-term value (think reasonable mortgages, education that enhances earning power, or amortizing loans tied to an asset). In some cases, such as mortgage or a home-equity line interest, it may also come with tax advantages.
Bad debt, on the other hand, typically takes the form of high-interest credit card balances; Buy Now, Pay Later (BNPL) purchases without a clear payoff plan; and lifestyle spending that doesn’t create future value. Those dollars don’t just disappear; they take tomorrow’s income with them.
Know what you owe before you act
If controlling debt is your New Year’s goal, visibility is your first step. Create a simple inventory that lists each balance, interest rate, minimum payment, remaining term, and the purpose of the debt. Seeing the numbers in one place moves you from vague unease to meaningful control. It also highlights which debts are hurting you most (such as the 24% credit card that should take priority over a low-rate mortgage).
Tackle high-interest and low-balance debt first
Once you have the full picture, address the high-interest balances first. These are the ones quietly compounding against you every month. Some people prefer the Debt Avalanche method (pay down debt with highest annual percentage rate, or APR, first); others respond better to the Debt Snowball method (dispatch the smallest balances first for quick wins and a psychological boost). Neither is necessarily better than the other. The best method is the one you’ll stick with.
Debt-management options such as zero-balance transfers or consolidation loans can help, but only if you manage them with discipline. They’re tools, not magic-wand solutions.
Use good debt sensibly
If you were fortunate to lock in a 3% percent mortgage before rates rose, accelerating payments may not be the most effective use of your cash today. But if you’re buying a home or car in today’s rate environment, stricter budgeting and right-sizing your purchase becomes essential.
Turn a January resolution into a 12-month plan
Big financial change can happen through small, consistent decisions. Try focusing on one primary and attainable goal, such as reducing credit card balances by 30% this year. Break that into monthly targets and automate payments above the minimum. Redirect raises, bonuses or tax refunds toward your highest-interest balances. These small actions compound in your favor.
Protect your progress
Once you begin paying down debt, it’s important to avoid sliding backward. Create a short “no-go” list: vacations on credit cards, unnecessary store cards and casual use of BNPL for non-essentials. Begin to build an emergency fund and pull your credit report annually.
If you’re relying on credit cards for groceries or minimum payments are crowding out your budget, consider reaching out to a nonprofit credit counselor or a certified financial planner. Avoid for-profit “debt relief” offers that promise quick fixes, as they often create bigger problems down the road.
A better year begins with one step
Debt isn’t inherently good or bad. It’s simply a tool with pluses and minuses. But in today’s high-rate world, using that tool wisely matters more than ever. We suggest starting small: pull a credit report, list your debts and APRs, or automate a single payment. A year from now, you’ll be glad you did.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Advisory services offered through Wealth Enhancement Advisory Services LLC, a registered investment adviser and affiliate of Wealth Enhancement Group.
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