Published On: Wed, Oct 11th, 2017

Can Debt Ever Be a Good Thing?

Unfortunately, money does make the world go round. Without it you can’t eat, can’t keep a roof over your head or clothe yourself. There’s more to life than money but it is a big part of it, and knowing how to manage money responsibly is an important skill to learn in your adult life. One thing you will come up against at one time or another is borrowing money and debt. While ‘debt’ has many negative connotations, there are some instances where getting in debt by borrowing money can be a good thing. Confused? Read on to find out more.

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Examples of Good Debt

Debt can be considered ‘good’ when you lend money for an investment which will grow over time. For example, if you get a mortgage and borrow money for a house, you’re no longer wasting money on rent but your house will increase in value year on year. Property appreciates (goes up) in value year on year, while there are rises and falls in the property market it’s a safe bet and the home that you own now will be worth more years down the line. If you need to travel for work, financing a car can be good debt since it may allow you to take jobs that would have been unavailable to you. Financing often makes more sense than buying an older model outright since you can spread the cost, and afford a better and more reliable car. Find a site that shows all makes and models and choose carefully- it should be functional but doesn’t need to contain lots of added extras. Borrowing money for education is another example. Since education will boost your job prospects, allowing you to earn more money later down the line. This makes it a worthwhile investment.

Examples of Bad Debt

Bad debt is usually a result of people living above their means. When you borrow money to buy things you can’t afford, that you don’t need and won’t grow in value then you can find yourself on a slippery slope. The problem with borrowing and getting into debt is that it can start small, and then spiral. Eventually you can end up paying massive amounts of interest, and not being able to take any off the balance since the interest is sucking up every payment you make.

 

Where It Gets Confusing

The problem with anything is that things are never completely black or white. Sometimes the line between good and bad debt can become blurred, so it’s important to use your common sense. For example, a once in a lifetime trip abroad with your children could be seen as good debt since it will give you memories to last a lifetime, and allow your children to have that experience when they otherwise wouldn’t have. However it is still a luxury, and could be seen as spending on something you can’t afford. When financing a car, do you really need a more expensive model or do you just want it- would a cheaper car do what you needed and open the same doors of opportunity? Use common sense, and always plan your debt repayments to make sure you can afford what you’re lending.

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