Good Versus Bad Debt

"Instead of showcasing the challenges of women as a group, I look to help each woman as an individual with a plan that is right for them."
-Katherine Hann
October 4, 2016

Good Versus Bad Debt

By Katherine Hann

Good Versus Bad Debt

Good versus Bad Debt

Debt is about borrowing money and that comes with risk.

When considering borrowing money, ask yourself the following questions:

  • Will borrowing this money improve my finances in the long run?
  • Have I shopped around to get the best deal?
  • Will I be able to cope should interest rates rise in the future?
  • Will I comfortably be able to afford the repayments?
  • Do I understand all the terms and conditions associated with borrowing this money?
  • Do I understand the risks and what could happen if things go wrong?

So what is the difference between good and bad debt?

Debt is considered good when it’s efficient—that is, it’s working to help you build wealth.

One of the most efficient ways to use debt can be borrowing to invest in an asset, such as property or shares, which can generate income and grow
in value while the interest charged on the debt is generally tax deductible.

However, be aware that this can be highly risky and you should not enter into an arrangement to borrow money to invest without advice.

Bad debt is said to be inefficient because it generally costs money in interest charges without helping to build your long-term wealth.

The least efficient debt is money borrowed through credit cards and personal loans to pay for day-to-day expenses or an asset, such as a car that
decreases in value.

While I am not a mortgage broker or lender and therefore can’t advise you on taking out a specific loan, what I can help you with is a plan to achieve you financial goals and if appropriate for you, build long term wealth.