Can Debt Ever Be Good?

October 20, 2014

Luke-Notley small (Custom)The word ‘debt’ brings with it negative connotations, tarred with a harmful stigma. However, some debts can be positive and beneficial to the debtor – helping to improve credit ratings and offering a sensible investment in your financial future. A good debt can help you benefit financially in the long term without providing any negative impact.

 

 

What is a Good Debt?

A good debt can be characterised as a debt taken out for a clear and specific reason with a realistic repayment plan. The repayment plan should be supported by regular and affordable repayments, or as quickly and efficiently as possible.

Furthermore, a good debt is one which incorporates the terms and charges most appropriate to the debtor. The debtor will have found the cheapest possible way to borrow the required money – often a loan with the lowest interest rate.

Student Loans

Taking out a student loan to complete studies which will help you progress your career can have long-term financial benefits. In many roles and industries, graduates will receive higher levels of remuneration than non-graduates. This will allow the graduate to repay the loan and begin benefitting from a higher wage.

Additionally, student loans only require repayments when the graduate is earning above a set threshold.

Mortgage

A mortgage is often a family’s largest ever investment. Although you made be indebted to a mortgage company for a couple of decades – owning your own home can become a fantastic financial asset. Homes will often increase in value over time, increasing your investment.

Additionally, monthly mortgage repayments can often be lower than rent and will result in equity unlike rent.

Affordable Car

On a smaller scale, an affordable car can help progress your career and improve your earning potential. Purchasing a car on finance may be the most affordable way to pay for a personal vehicle. It is important to factor in running costs and insurance when budgeting for buying a car on a finance deal.

Business Start Up

A business loan to develop or expand your own business can massively improve your long-term earning potential. A strong and successful business plan can reap incredible earnings over time. Peter Laird and Kevin Eastman took out a loan to fund their Teenage Mutant Ninja Turtles comic book. The franchise has spawned cartoons, toys and films – netting Laird a cool $20 million over the years.

For more information about good debt vs bad debt, visit the InControl homepage or call our dedicated advice team on 0800 072 6623