Good Debt vs. Bad Debt in Nigeria: Why Loan Apps Are 'Bad Debt'

In Nigeria, borrowing money (Gbese) is often seen as shameful. But did you know that some of the richest people in Nigeria, like Dangote, use debt to grow their businesses?

Financial experts divide debt into two categories: Good Debt and Bad Debt. Understanding the difference is key to escaping poverty.

What is Good Debt?

Good debt is money borrowed to pay for things that will increase in value or generate income over time.

Examples in Nigeria:

• Business Loan: Borrowing to stock up your shop or buy a bike for delivery business. If the profit is higher than the interest, you win.
• Real Estate: Buying land in a developing area (like Ibeju-Lekki) that appreciates in value.
• Education: Paying for a certification (like Tech or Nursing) that helps you get a higher-paying job abroad (Japa) or locally.

What is Bad Debt?

Bad debt is money borrowed to buy things that lose value or for consumption. This is what keeps many Nigerians poor.

Examples:

• Loan Apps (Sharks): Borrowing ₦10,000 to pay back ₦14,000 in 7 days just to buy food or data. This is a trap.
• Aso Ebi / Wedding Loans: Borrowing to impress people at a wedding. The party ends in one day, but the debt lasts for months.
• New Phone: Buying an iPhone on credit when your salary can't support it.

The Grey Area

Some debt depends on how you use it.

• Car Loan: If you buy a car for personal comfort, it's a liability (it consumes fuel and repairs). But if you use that car for Uber/Bolt on weekends, it becomes an asset.

Tips for Borrowing Wisely

1. Run the Numbers: If you borrow at 5% monthly interest (60% per year) for a business that only makes 20% profit, you are working for the lender.
2. Avoid Consumption Loans: If you can't afford it in cash, don't borrow for it (unless it's a house or education).
3. Check the APR: Loan apps hide their true rates. A "1% daily" rate is actually 365% per year!

Before you click "Apply" on that loan app, ask yourself: "Will this debt make me richer or poorer in 6 months?"

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