If you’ve spent any time listening to financial gurus like Suze Orman, you’ve probably heard the terms “good debt” and “bad debt” bandied about. Orman and her colleagues often point out that not all debt is created equally. Buying a new car is typically considered an example of “bad debt”; it starts depreciating, or losing value, the minute you drive it off the lot. Good debt, on the other hand, is an investment that appreciates, or gains value over time. Common examples include the purchase of a rental property or business. If you play your cards right and the stars align, the money you initially invested is supposed to generate orders of magnitude more in profit.

Good Debt Vs. Bad Debt

But what happens when you’re a security clearance holder and you get behind on your debts? Readers of this forum know that the number one reason why security clearances are denied or revoked is financial issues – specifically, delinquent debt. Does the type of debt (“good” vs. “bad”) have an impact on the outcome of the security clearance adjudication?

My short, lawyerly answer is “sometimes.” To understand when and why it can play a role, consider first that the National Adjudicative Guidelines for Security Clearance are broadly and flexibly written. They grant personnel security officials a substantial amount of discretion; and, while they don’t specifically differentiate between “good” and “bad” debt, they do focus a lot on personal responsibility, character, and reasonableness.

All of this is to say that appearances matter. A delinquent debt from your repossessed late model luxury car isn’t going to score you any points, especially if the delinquency was preventable with some effort or your finances indicate that buying the car in the first place was a reckless decision. On the other hand, a delinquent business debt resulting from an economic downturn may garner some sympathy.

Delinquent Good Debt Still an Issue

Keep in mind, however, that even a delinquent “good debt” can be problematic if you haven’t acted reasonably and responsibly in keeping up with it. The conduct of the debtor is usually the bigger issue in these cases than the type of debt. Only after a showing of good faith effort to address one’s obligations can the type of debt potentially tip the balance in the clearance-holder or applicant’s favor.

Unfortunately, that’s not the end of the inquiry. Even if you’ve demonstrated that you’ve acted reasonably and responsibly – both when incurring the debt and resolving it – a security clearance can still be denied or revoked if the circumstances would lead a reasonable observer to conclude that the debt creates a heightened susceptibility to bribery or other criminal behavior. There are a variety of ways to combat this perception, but one of the most common is with character, or “whole person”, evidence designed to showcase your standing in the community and reputation for reliability, integrity, and good judgment.

Making Wise Decisions

I should also add that security clearance adjudications aren’t supposed to be about whether the adjudicator would have made the same purchase or investment as you did. Security officials are not supposed to be weighing the financial wisdom of a purchase based on their own, subjective risk tolerance, investment style, or tastes. Instead, these assessments are supposed to be made using general, objective standards of reasonableness and personal responsibility.

So, while there is nothing necessarily wrong with – to use my earlier example – buying a nice car, just be sure that you can really afford it and that if your finances unexpectedly go sideways, you aren’t caught flat-footed. An emergency fund and a reasonable remainder after your monthly expenses goes a long way in demonstrating reasonable, responsible behavior. You can bet that security officials will ask about both in any denial or revocation case predicated on financial issues. When they do, the “good debt” vs. “bad debt” characterization is only a small slice of the pie.


This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation. 

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Security Clearance Attorney Sean M. Bigley represents clients worldwide in security clearance denials and revocations. He is a former investigator for the U.S. Office of Personnel Management. For more information, please visit www.bigleylaw.com