This is a confusing question for some but here is the simple answer:
Good debt is generally any debt that belongs to an asset which increases in value or makes you an income. The most obvious is a house, people use property to build wealth so the loan used to do this is good debt. If it is the house you live in the value increases over time and if you buy a rental property it not only gains value but gives you an income.
Everything else is generally bad debt, the obvious ones are credit cards, afterpays, pay day loans.
Bad debts are borrowing from your future self, it is credit cards that you have good intentions of paying off, but this rarely happens. Credit is easy to come by in the form of gem visas and Q Card and you get offered the ever rising credit limit, so you get the new bed or a holiday.
Before you know it you are at the limit and in some cases debts are used to pay debts. New credit cards are used to pay old credit cards, or pay day loans are taken out that charge 300% interest.
Then you start getting that niggly feeling that you need to do something about the debt but you push it down to deal with another day. Worst case scenario you can’t make payments and end up with a credit default, or the mortgage payments slip and the bank starts coming for you.
Don’t fall into this debt trap. You can reset before it gets too late, the earlier you take responsibility for the debt and take control the easier it will be.
This could be in the form of a debt consolidation loan. This gives you a clean slate particularly if you have multiple small loans or credit cards. It keeps them tidy in one loan with one repayment and more often than not the repayments are cheaper than all your current repayments combined.
Not only does this give you some financial reprieve on a weekly basis but you can get a budget going and through some commitment make sure you don’t get back in the same position. This is the time to give yourself a good shake and be responsible for your future
The second option is for homeowners to refinance and add the debt to the mortgage. This often does not change the mortgage repayments significantly and achieves a similar outcome to a debt consolidation, it gives you the fresh start. Again you will need to show some future discipline to avoid the same position, the risk is that eventually, you will run out of credit and consolidation options.
Its not all doom and gloom, mortgage advisers do debt consolidation loans, this is what we specialise in. If you have a sick pet you take it the vet, you can’t always fix it yourself, you can’t always fix your own car, there are times when you just need a specialist and for finance that is our job.
Avneet Singh
Mortgage Adviser
Phone: 027 2791 459
Email: [email protected]
