Here’s how to know if you have 'good debt' or 'bad debt’ 

Shopping with credit card may be an example of racking up "bad debt" if you can't pay the balance off each month. 
Caiaimage/Paul Bradbury | Caiaimage | Getty Images

Americans have a lot of debt, but that may not be a bad thing.

Today, the average American has about $38,000 in personal debt, excluding home mortgages. That's up $1,000 from a year ago, according to Northwestern Mutual's 2018 Planning & Progress Study, which also reports that "fewer people said they carry 'no debt' this year compared to 2017 (23 percent vs. 27 percent)."

"It's kind of a debt culture," Carrie Schwab-Pomerantz, a financial adviser, board chair and president of the Charles Schwab Foundation, tells CNBC Make It. A recent study by Charles Schwab found that even those who are part of Generation Z (ages 16 to 20) already have an average debt of $4,343.

Part of the issue is that there's a lot of misunderstanding about debt and how to approach it correctly. For example, one in five young adults Schwab surveyed believe home mortgages are "bad debt," and almost 40 percent call student loans "bad debt." Meanwhile, 27 percent labeled revolving debt, such as credit card debt, "good debt."

All of that runs contrary to what experts actually consider "good" and "bad."

Mortgages and student loan debt is considered "good" because it serves a bigger purpose with equity or earnings potential in the future, Virginia-based financial planner Nicole Theisen Strbich tells CNBC Make It. For example, paying down a mortgage results in equity in a home as well as potential tax advantages, while student loans are generally a low-interest investment in your future compensation.

Credit card debt, however, is considered to be "bad" debt because it typically comes with high interest rates. Plus you're usually spending on things that have a depreciating value, which means they're losing value over time.

"Bad debt just creeps up on your and will often last longer than the things you purchased," California-based advisor David Rae tells CNBC Make It. "For example — dining out. You will be hungry again long before that credit card bill is received, let alone paid off."

That said, too much of a good thing can turn ugly. "Good debt is bad debt when you're drowning in it," Schwab-Pomerantz says. She recommends keeping your total amount of debt ⎼ including student loans, mortgage, credit card bills and other loans ⎼ to less than 36 percent of your total gross income.

"I get that people want to stretch, but you don't want to drown in debt," she says.

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