There are examples of good debt and bad debt. It’s not the case that all debt is bad. Debt can often be used to do good things for yourself and your family. In the end, the debt could turn out to be the springboard you need to move onto bigger and better things. It is important to know the difference between good forms of debt and bad forms.
Bad debt is exemplified by unnecessary consumption. If you just want to borrow in order to buy a new TV or some new clothes, then this is bad debt. You don’t need those things, and they won’t do anything for your future. So, that’s the mind of debt you should stay away from. But what is good debt? Read on to find out.
Educating yourself can be useful for all sorts of reasons. For young people, going to university usually means getting into debt. But the aim is for that degree to pay for itself when they land the job they want. That’s why student debt is seen as a good form of debt. It doesn’t need to be paid off in a hurry either, which is always good.
It’s not just people in their late teens and early twenties that can go into education though. Many people decide to switch careers and take a new direction in life. If you do decide to do this, then you might need to retrain or get a new qualification to make it happen. Again, this is a good form of debt. It’s attached to your career growth, so the debt will be rewarded.
Starting a Small Business
Starting a small business is a daring and risky move to make in life. You can become your own boss and try to go it alone. For many people, it can be very successful and rewarding. However, it always takes some money to get started, and that’s why many people choose to borrow. This adds an extra burden, but it can be a worthwhile decision to make.
If all goes according to plan, the money you borrow will be able to be paid off as the business becomes profitable. Of course, the pressure will be on you to make sure that you can turn a profit relatively quickly. But these loans tend to be long-term anyway, so you won’t necessarily need instant results from your business.
Buying a Home
Buying a home is obviously one of the most important purchases that you will ever make. Doing it for the first time is a huge step to take in life. You will probably need to get a mortgage to make it possible for you. This is a very long-term loan that allows you to buy a home. As long as you are able to pay the deposit and make repayments, you should have no problem getting one.
A home is the most important asset of all. When you are on the property ladder, you can start paying off your mortgage until the home is completely yours. This gives you an immense amount of security. You will know that you have a home of your own and that no one else will be able to take it away from you.
Investing in Your Family’s Future
Your family’s future is very important to you, so you might want to do things to invest in it. This could mean improving the home or paying for extra tutoring to improve your children’s grades. These things do cost money, so some people choose to take out loans. Of course, it’s up to the parents to decide what’s important and what’s worth spending money.
However, no one would argue that spending money that helps your family is a bad thing. As long as it is something that is done sensibly and securely, there is no reason why that debt has to cause you problems. Managing debt to income ratios is important if you want to make sure that you stay financially stable when borrowing.
Finally, you should be aware of debt consolidation loans. These are important because they help you to make your debt burden more manageable. Yes, they are another form of debt, but they help you to address your existing debt problems.
For example, if you had five small debts, a consolidation loan would allow you to pay them all off. You would then be left with one larger debt rather than lots of smaller ones. It makes the situation much easier for you to deal with, so they are an example of good debt.