What is good and bad debt?
It can be tempting to use debt to get what you want now and pay for it later. But too much debt can impact your ability to save and even make it difficult to meet your everyday expenses, particularly if you are borrowing using credit cards with high interest rates.
What you need to know
Avoiding unnecessary debt early in life will be a huge benefit later on. But, it is also important to understand that not all debt is bad. Purchasing assets that are likely to go up in value (such as your first home) or generating additional income using loans can often be a sound financial decision.
Ideally, try to avoid going into debt to pay for depreciating items, such as cars and luxury goods. You’ll probably end up paying a lot more than you intended, so before you buy you should consider the total cost of the purchase, including interest repayments.
- Do your best to pay the balance of any credit card debt in full every month to avoid your credit card bill spiraling out of control
- Shop around – find the cheapest card that suits your needs and cancel multiple cards
- Start a budget so you know exactly how much you can afford to spend
A Financial adviser can help you:
- Review your finances and help you reach your goals
- Minimise your bad debt
- Set up a budget and regular savings plan