When we think about ‘debt’, it’s almost always seen in a negative light. And it can feel that way too, knowing you owe money out can be a big weight on your shoulders and can result in some feelings of stress, even if it’s under control. But actually, sometimes not only is getting into debt essential but sometimes it can be a really good thing. It can improve your life no end! Bad debt comes from borrowing money for things that you don’t really need, luxury purchases like technology, clothes and holidays that you could save up for but just don’t want to. Over time, interest accumulates and you end up paying far more than the original debt. Good debt on the other hand involves lending money for an investment which will either grow in value or generate income for you long term. Here are some examples of when it’s well worth borrowing money and getting into ‘debt’.
Possibly the largest sum of money you will ever borrow is to pay for your home. Getting a mortgage technically puts you thousands in debt, but the rewards and the improvement to your financial position long term is massive. Rather pay a mortgage each month that’s going towards buying your home than rent which is essentially ‘dead money.’ House prices accumulate in value each year meaning it’s a fantastic place to put your cash.
The lines can get a little blurry here, as lending money for a car can be both good and bad debt. If for example you’re borrowing money to learn to drive and get your first car, this is a good thing as it’s getting you out onto the roads and gaining your independence. It could allow you to apply for jobs further out and will generally improve your life no end. If you currently have a car that’s a money pit and is constantly breaking down and costing you a bomb, upgrading to something more reliable would be seen as good debt. If you’re in this position, search something like ‘Mercedes dealer near me’ and find out what the best deals are.
Education is another form of good debt, whether it’s a student loan from the government or a personal loan to fund your studies yourself. More education can lead to a better paid job and improved prospects. It’s an example of how spending money now can generate income for you later on. It’s always a worthwhile investment, if it’s qualifications that are preventing you from getting your dream career or progressing to the next stage then don’t be afraid to fall into ‘debt’ to make this happen. Of course, nothing is ever guaranteed in life but those with better education have a far better chance of getting a well paid job and it leading to a good career.
Had you ever considered the difference between good and bad debt? Of what you owe, how much could be be considered ‘good’ and how much ‘bad’?
This is a contributed post.