What is Good Debt? What is Bad Debt?
You hear everywhere that debt is bad, credit card debt, store card debt, mortgage debt, overdrafts, consolidation loans etc… But you know sometimes it makes sense to get into debt.
“What is Good Debt?” It is almost impossible to live a debt free existence as there are essentials which can really only be purchased with debt. As long as you do not borrow outside of your means, this can be classified as ‘good debt’ and includes:
Mortgage Debt – House prices may be falling, but not enough for most of us to afford to pay for our home up front. This means that most of us will need to get a mortgage.
Make sure that the mortgage debt is within your means, you don’t want your mortgage payments to be too unrealistic or else you are at risk of repossession. Consider taking the time to save up for a house deposit and work out realistically how much of a mortgage you can afford.
Student Loan Debt – Whether this debt is for yourself or for your children, the truth is that the cost of higher education is not cheap meaning that many of us will get into debt to afford a University course.
Ensure that you can afford to borrow and contact your College or University to see if you are eligible for any form of financial help, such as grants or having your tuition fees paid for.
“What is Bad Debt?” Although the above shows a couple of examples where debt can be good, for the most part debt is bad, including:
Overdraft Debt – Some people forget to include their overdraft as a debt as it is linked to their current account. Although some overdrafts don’t add any additional interests on, others do and there are charges which are added on if you go over this limit.
Credit Card Debt – Perhaps one of the easiest ways to get into debt without even realising it is through credit card debt! Putting things on your credit card and forgetting about it is one of debt’s most deadly sins (although not as bad as the interest rate on store cards, more on that later). It is far too easy to spend more that you can afford when you pay by credit card. According to statistics published by APACS, the average UK has more credit cards than people.
Store Card Debt – Store cards are like credit cards except you can only use them in certain stores. The interest rate of store cards is typically higher than credit cards or personal loans, and this type of debt should be used with caution.
Getting Bad Debt Help
Even if you have bad debt from all the sources mentioned above, it is not too late to debt help. There are a number of debt solutions on the market which could help you reduce the monthly amount that you need to pay to creditors. Examples of these debt solutions include debt management plans and IVAs.
Please contact us today for further information about how you can get bad debt help.