5 Examples of Good Debt

When we speak of debt, it is often used as a dirty word full of negative connotations. Unfortunately, this type of financial misinformation could be the only thing standing between you and a brighter financial future. Debt doesn’t necessarily have to be a bad thing. By educating yourself and becoming more financially literate, you should be able to distinguish between good debt and bad debt. 

Good debt is any debt you have the ability to repay according to the terms of the loan. In fact, almost all debt is good until you can no longer manage it. Furthermore, you should consider the purpose of getting into debt - if you are using the funds to invest in something that will improve your quality of life and positively affect your financial situation moving forward, it can be classified as good debt.

Before getting yourself into any type of debt, it’s crucial that you remain honest and avoid any common financial lies people often tell themselves. To make things a little clearer, here five examples of what could be considered good debt:

Getting onto the property ladder is always a smart move. On the whole, property is a sound investment that only increases in value over time. Most people won’t have the savings to buy their home outright, and with the rate at which house prices are increasing, it is almost impossible to save enough money first. This is where taking out a mortgage can be useful, as it enables you to get your hands on an asset where you will get a high return on investment. With that being said, be sure to read the terms of your home loan carefully and don’t rush to pay it off too quickly at the expense of having an emergency fund.

Depending on your particular situation and where you live in the world, having a set of wheels may be a necessity. Having the freedom to move around independently may also open up new job opportunities for you too. If having a vehicle can increase your earning potential, then it is a good investment even if you need to take out car finance. It’s important, however, to ensure that you aren’t lured into buying a car that goes beyond your budget, where you’ll struggle with repayments. 

Education opens up doors and gives you access to better-paid jobs. However, with the rising cost of tertiary education, most students and parents have to take out loans to pay for it. If you feel that investing in a university education will pay off throughout the course of your life, then it’s worth getting a student loan, especially if interest rates are low. However, for those just pursuing university for the ‘experience’ with no real guarantees that this will improve earning potential, then it may be necessary to think twice. 

Life is full of surprises, and not all of them are good. A sudden death in the family or a car accident that leaves you unable to work for a period of time are just two examples. If you find yourself in a situation like this and you’re strapped for cash, taking a short-term loan to help ends meet isn’t a bad idea. If you need a buffer to buy you some time to find a new source of income, this might be just the thing that could help. As long as the prospects of you paying it off remains high and the terms are favorable, then it has the potential to be good for you. For some good short-term loan options, visit this website. 

While you’ll hear plenty of horror stories about people racking up credit card debt, if you can use a credit card responsibly and pay off your debt at the end of each month, then it can be a pretty useful tool at your disposal. Shop around and find which credit cards offer the best rates, rewards and support for settling disputes with vendors. Finally, using a credit card sensibly will also serve to improve your credit score which will certainly help you further down the line. 

Some form of debt is a reality for most people. It is important to realize that debt is not always a bad thing. It has the potential to improve our lives and give us access to new opportunities. It is just a case of being smart, looking to the future and making wise decisions about the type of debt you incur and the reasoning behind it.