Good Debt vs. Bad Debt: Is There Such a Thing?

If you are looking to spend your money on something large, then the question can often be asked if it is worth getting into debt over. Should you be better saving that money for other things? Do you really need it right now?

 

Once you have been able to answer those questions, then you need to think about how much of an investment for the future are those things that you want to buy? In basic terms, is it going to be a good debt or a bad debt?

 

If you’re confused by those terms, then it is time to explain what I mean. Good debt can be something that is a sensible investment for your future. It should be leaving you better off in the long run, which is what we all want. Plus, it shouldn’t have a negative impact on your life at the moment. Basically meaning that it could spiral out of control and interest rates are low. Bad debt is when it is the complete opposite. It isn’t going to benefit you in any way in the long run and can cost you more and more to do so. So when you are left in a position questioning if you should be spending money on something, then those definitions should spring to mind.

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Examples of Good Debt

 

  • Student loans are a pretty good example of good debt. They are helping you to achieve something that can set you up for life and improve your employability and career prospects. Often, the interest is lower on student loans than on other loans. It can get out of control a little if you don’t budget and plan well, which is where consolidation of student loans might come in. But check somewhere like studentloansconsolidation.co before you consolidate. You want to make sure that you’re going to be getting a good deal.
  • Mortgages are another example of good debt. You are paying money each month towards owning a home. You aren’t wasting money and sending it to a landlord. At the end of the day, once you’re on the property ladder, you have something that is yours, and you can sell at any point. You could read more here moneysavingexpert.com if needed. So it definitely is a good debt to have.
  • Investing in your own business, or perhaps a business of others can be a good debt to have. It means you could get a business off the ground and you can benefit from the profits. As long as all risks have been assessed, then it can be a good debt to have.

 

Examples of Bad Debt

 

  • If you’re borrowing money to pay off bills or credit card debt, then that is an example of bad debt. It will just get you into further financial problems over all. So don’t borrow to pay off borrowing.
  • Paying for anything that you can’t afford with credit cards or loans, that you won’t be able to pay off in full, is an example of bad debt. Whatever it is, a luxury holiday or some new clothes, if you can’t afford them, you shouldn’t be buying them. It really is as simple as that.

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