There are many people that think that all forms of borrowing are wrong. This might be because they have got into debt trouble in the past or that they have seen other people struggling. It is true that debt can be a big problem for some people. But it can also be useful for some people as well. Therefore it is worth thinking about debt as being either good or bad, depending on the type of debt and what it is being used to pay for.
Good debt is often thought to be a debt where you are bettering yourself by getting it. This could be something like a student loan, where you will not only be improving your chances of getting a better paid job, but you will also only have to repay it if you earn enough money to do so. Another example could be a mortgage where you end up owning a property that will usually increase in value which you are living there. You save money in rent and although home ownership has additional expenses, it will mean that you end up with a property that you can sell or leave to your children and then pass that wealth on.
Debt is also considered good when you have done a lot of research into it and thought hard about whether you think that you can afford the loan and the repayments. Also comparing different types of debt and different providers so that you can be sure that you are getting the best possible deal on your loan and not paying more for it than necessary.
Bad debt would be a loan where you are borrowing money when you do not really need to. Perhaps if you have some savings but you take out a loan anyway. It could be that you top up your savings account with a loan, do not pay off your credit card in full, even though you can afford to or borrow money for unnecessary and luxurious items.
Also taking out a loan when you have not really researched would be considered to be bad debt. Perhaps borrowing more than you need, borrowing at a very high rate or just taking the first loan you come across without finding out more about what is available. Borrowing can be tricky and it is not always easy to understand your options and which is the best for you. However, a financial advisor could help you with this. If you cannot afford to pay an independent financial advisor, then your bank is likely to have one that you can talk to. They will only know about the loans offered by their company, but they will be able to explain to you about the different types of loans and which would be the best for you.
Deciding if Debt is Good or Bad
Sometimes it can be difficult to decide whether the debt that you are considering will be good or bad. This is because not all situations are clear and easy to assess. For example if you need some money to buy clothing for a job interview and have to borrow it as you have no spare money, but there is a chance you will not get the job, is it worth it? You will of course be able to use the outfit for other interviews, but it is still a gamble that you have to decide on. Often it can be a very personal decision with regards to your own circumstances. It can be wise to discuss it with someone as they may be able to help you see it from a different perspective. There are debt helplines that you can use as well and they may be able to help you make up your mind as well.
So although not all borrowing is wrong, it is up to you to find the right sort of debt for you. Make sure that you spend time thinking about your situation and what type of debt and amount you can cope with and manage the repayments for as well as the type of loan that will suit the circumstance that you are in.