Consolidate expensive debt to reduce interest, lower payments & stop late fees

Access the money tied in your home to get great consolidation loan rate from leading UK lenders

Good debt vs bad debt

Most people assume that all debt is bad for their finances. Surely owing money and paying interest is a negative thing, and you should repay your debt as quickly as possible?

Well, the answer isn’t quite so simple. The truth is that there are two main kinds of debts: ‘good’ debts and ‘bad’ debts. Keep reading to learn more about the difference between ‘good’ and ‘bad’ debts and why some debts could actually help you.

Good debts

‘Good’ debts are linked to anything that you invest in that offers a secure asset for you orgenerates more money for the future.

A mortgage is a great example of a ‘good’ debt. Even though you will pay thousands of pounds in interest during the term of your mortgage, the loan on your home will eventually be paid off which means you will own it outright. There is alsoa strong likelihood that your home will increase in value over the years, making you even more financially stable.

Another example of a ‘good’ debt is a ‘buy to let’ mortgage. Using a loan to buy an investment property can help your financial situation. The property may generate a rental income and increase in value over time, making you a profit when you sell it.

Other examples of ‘good’ debts are:

  • A student loan – Borrowing money to help you graduate can be considered a ‘good’ debt. This is because you are investing in yourself, and graduates will generally earn more money over their lifetime. In addition, the interest rates on a student loan are generally low and you only pay it back once you are earning more than a certain amount
  • A business loan – Borrowing money to invest in your business can help your enterprise to grow and to become more profitable. You could end up earning far more than the loan you took out

Bad debts

‘Bad’ debts are debts that you pay large sums of interest on that were accumulated through buying goods or services that don’t grow in value or leave you with any kind of asset.

A credit card is a great example of a ‘bad’ debt. If you have a credit card balance, you are simply paying interest (and high rates of interest at that) out of your monthly income. You don’t have any resaleable asset to show for that debt and the borrowing isn’t like to help you make more money in the future.

Other examples of ‘bad’ debts are:

  • Store cards – Store cards charge high rates of interest and end up leaving you paying a monthly fee and lots of interest until the debt is cleared
  • Personal loans – If you borrow money for a holiday or other luxury items, you could end up putting yourself in debt for years. Personal loans often charge high interest rates and so you could end up paying thousands of pounds in interest without having any asset to show for it

‘Bad’ debts often leave you in a situation where you have no real plan to repay the borrowing and you’re simply letting the debts eat into your income every month. Try to avoid ‘bad’ debts where possible.

Share/link this page, so more people become better at managing their debt. Also if you need a secured debt consolidation loan, fill this form.