Due to massive asset loss, many Americans purchased debt at an alarming rate over the past decade. MarketWatch reports that at the start of 2019, total consumer debt reached $14 trillion. That’s $66,945 per adult American, surpassing pre-recession levels by more than $1 trillion. Given the sheer volume of debt owed, it’s not surprising that Americans are beginning to fear debt—opting for debit cards over credit cards, renting over owning, and ride-sharing over vehicle ownership. 

While it is healthy to be leery of over-extending one’s finances, not all debt is bad. In fact, debt is often a necessary part of wealth creation. “Good” debt is debt that makes money and, when used wisely, can significantly increase present and future earning potential. 

Good debt can be broken down into three main types: mortgages, student loans, and small business loans.

Investing in real estate typically begins with a mortgage. Over time, the debt turns into wealth through increases in both equity and property value. The U.S. House Price Index shows that real estate prices have grown an average of 3.4% per year, so a home or investment property purchased for $100,000 will be worth $273,000 in 30 years—a 173% gain. While the same is true of owning rental properties, they have the added benefit of providing monthly income through rents paid, creating wealth in the short-term. 

According to ValuePenguin, pursuing a four-year college degree at an in-state university will cost more than $100,000. Since most 18-year-olds don’t have that kind of cash, they turn to student loans, the second type of good debt. Starting adulthood deeply in the red might seem irresponsible, but the shrewdness of such an investment is undeniable when considering earnings over time. 

According to the Bureau of Labor Statistics, individuals with a bachelor’s degree can expect to earn 65% more per hour than their co-workers with only a high school diploma. This has a significant impact over a lifetime of earning. The Social Security Administration estimates that college-educated men will earn a total of $2.19 million during their lifetimes, $900,000 more than high school-educated men. Given these estimates, purchasing a student loan for $100,000 in order to obtain a bachelor’s degree will yield an estimated 2,000% return on investment.

The third type of good debt is a small business loan. According to Thomas J. Stanley and William D. Danko, authors of The New York Times bestseller The Millionaire Next Door (Rowman & Littlefield), 66% of millionaires own their own business. Ownership has long been the path to wealth and is a cornerstone of the American Dream. However, startup costs can be prohibitive. A small-business loan can be the difference between deferring a dream or turning it into a multimillion-dollar corporation—and without a boss to dictate salary, earnings are potentially limitless. Eventually, the business can either be sold for a windfall or the owner can offload day-to-day management tasks and earn passive income.

Taking on debt is a scary prospect, but purchasing good debt like mortgages, student loans, and small business loans can lead to increased income in the short-term and significant wealth in the long-term. 

Ansley Fender is a personal finance coach and freelance writer. She is the owner of Fender Financial Services, a bookkeeping firm for nonprofit organizations and small businesses.