I get asked this question very often, and let me be the first to say that the answer is not the same for everybody.
Many people will say “no debt is good debt.”
Let’s take a look at GOOD DEBT
If you define good debt, it is normally debt that improves your net wealth, in other words, makes you richer.
The famous old saying: “it takes money to make money.”
So, if you borrow money and you turn that money into more money, then it must be good debt.
Take your house bond, for example. You borrow a great deal of money and buy a house, this costs you every month, but on a house, you benefit in two ways. First, you are not paying rent, and, second, the value of the house goes up.
Probably the best debt you can get.
Then, what is the worst debt?
I think the worst debt is debt that you get when you are in a panic, you have run out of money and the month is not yet over, and you take a month-end loan to buy food and put petrol in the car.
READ MORE: How to fix a bad debt review
The food and petrol is finished in a week and the month end loan is deducted, plus interest and costs, in one go at the end of next month.
These types of loans are the most expensive legal loans that you can take.
In short, a month-end loan to pay for consumables is probably the worst type of debt you can take.
So, we said that month end loans are bad, but let’s look at a guy who does private jobs on the weekend.
He takes month end loans to buy stock. With the loan money, he buys all the electrical stock. When the job is finished, he gets paid and he pays back the loan before the end of next month.
Plus, he made a profit after the loan was deducted.
That’s a good loan for him, and he used the money to make more money.
Let’s move on to credit cards.
Credit cards are wonderful IF you use them wisely. If you pay for your monthly purchases with your card, and before the due date to pay, you settle the full amount, that’s good credit.
ALSO READ: Lay-bye instead of using your credit card
And then, on Friday night you are partying with friends. When you have had a few drinks, you decide to buy the whole table a round on your credit card. Later, when the waiter brings the machine, you wonder who ordered so may expensive drinks and you have to use the budget option over 6 months. That’s bad credit.
READ MORE: What is responsible credit?
And lastly something very important:
Let’s talk about education
Education is the key to more money. It’s been proven over and over, the higher your qualification the more you earn.
When you take a student loan to get a higher qualification that will earn you more money, it must be good credit, right?
Big businesses know this and will loan their employees money to study further in a direction that will benefit the business.
And that’s the key.
If it’s going to earn you more money, then its good credit for a good education.
Then there is education that enriches your life, the pottery, the flower arranging course at the church, or the pilot’s license that you always wanted do to do,
Should you borrow money or save money for them? After you have finished the course, you are probably not going to make more money, but they could make you happier. There will be many different opinions, so I’ll leave the answer up to you.
Is this good credit or bad credit?
If you feel like credit is getting you down, don’t forget that we’re here to help. Come chat to us at RD Debt Counselling and let’s see how we can help you.