Is There Such Thing as Good Debt?

There are some people that really do not like any sort of debt. They feel like no one should borrow at all and that debt is a scary thing. It is understandable that some people will have this attitude but in contrast there are people the believe in a thing called ‘good debt’. They believe that some sorts of borrowing are useful and good and therefore not all debt is bad. It is worth thinking about some examples of what is considered to be good debt so that you can think about what your opinion is on it.

Student Loan

The student loan is a way that people can borrow money to cover course fees and living expenses for going to university. This is considered to be a good loan for several reasons. Firstly, it will allow you to get a qualification which should lead to a better paid job and that will allow to earn more. Secondly you only pay back in small instalments that you can afford. They are taken through your tax code and it is means tested so if you do not earn enough money, you will not have to make the repayments. After thirty years, the loan is written off by the government. This means that you may never have to repay it all and some people do not repay any of it. As long as you complete the course, get a good level of qualification in a subject that leads to a career that pays well and potentially have a good increasing pay scale, then it will be well worthwhile getting the loan.

Mortgages are a great example of what is considered “Good Debt”.

Mortgage

A mortgage is a specific loan that is used to pay for a home. This is the way that most people will be able to afford to buy a home of their own. There are advantages in owning a home, in that you will no longer have to pay rent and once you have paid off the mortgage you will have nothing to pay on a regular monthly basis apart form buildings insurance. You will have to pay for any repaired, renovations and redecoration though, but these could be a lot cheaper than you will pay out in rent, depending on the condition of the house. You would need to make sure that you got a survey and checked this out before you bought it and some insurance might cover some repair work as well.

Some other loans

If you are borrowing money for a purpose that will improve things for you, then this can be considered to be a good loan. However, you also need to make sure that you can afford the repayments. This is really important factor and if you struggle and get extra charges as a result then this make sit bad debt rather than good. It is also wise to compare loan types and make sure that you have the best loan for the job as well as one that offers good value for money. This means that you will need to do research to find out what is available and think about what you feel will suit your needs the best. It is not always easy working out whether something is good or bad debt. However, it is wise to think about how the item you are buying with the loan will benefit you financially. If borrowing money will improve your finances in the future then it is potentially a good loan. But you need to be sure and be confident that you can repay the loan. Of course, it is always a risk but if you do your best to minimise that risk then you will be doing your best to protect yourself from it.

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