The word debt immediately send shivers down the spines of many people as it is associated with sleepless nights and the worry of covering re-payments while covering daily living expenses.
With today’s credit card mentality debt seems to have become the norm, almost everyone has a credit card or some kind of loan. It can be difficult to judge if a situation is worth getting into debt for, so now the concepts of ‘good debt’ and ‘bad debt’ has developed.
Good debt refers to situations where it is worth getting into debt for and may even ultimately improve your financial position.
o Education is an investment which can lead to improved job prospects. It is worthwhile researching options such as courses with placements or employer funding to reduce the financial impacts. There is financial help for students including low interest student loans, student banking and scholarships.
o Getting a mortgage is also considered an investment whether it is your home or a property you want to rent out. Think carefully about how much you can afford to pay back each year. Many people make the mistake of setting the payments too high in order to pay it off as quickly as possible, only to struggle to keep up.
o Buying a car is complex as it can fall into the bad as well as good debt category. The value of the car will continuously depreciate so it should only be purchased if it is truly needed. Once again it is important to think carefully about what you can afford and buying a good quality car within that price range.
o Taking out a loan to fund repairs and improve your home is sensible it if it adds value to the property.
If used intelligently, loans and credit cards can be a useful tool for improving your life, but often the younger generation see credit cards as an entitlement. In this case credit cards and loans are often used to cover daily expenses such as food and clothing, which tends to lead to overspending and not much to show for it.
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Student loan debt is horrible. I never recommend that anyone borrow to go to school.
And borrowing for a car is dumb. If you can’t pay cash, you can’t afford it.
It is bad financial advice to say that taking out a home equity loan is okay for repairs and upgrades. It isn’t responsible advice.
You will never get ahead by borrowing more money. You only add more risk to your financial well being.