Money Glee Monday #4 - Is debt good or "bad"?

You've heard opinions from everyone about debt ranging from being told to avoid it like the plague to being told to use it like it's free money. Debt itself we would consider as being neither good nor bad, it is neutral and it really depends on your planned destination

Debt is neither good nor bad it depends on your destination

Debt is neither good nor bad it depends on your destination

Rather than be anti-climatic & end the article there, we wouldn't do that would we, lets unpack the statement that debt is neutral and can be both good and bad!

Debt can be good

  • If used "correctly" there is the opportunity to leverage and accelerate growth of assets and your rate of return
  • If managed with the intention of paying off on a monthly basis (i.e. a credit card) with cash that you already have and can afford, this can be an opportunity to earn rewards
  • Where you are using debt to achieve a family goal such as buying your own home, this may be a valid option to use debt
  • Certain debt terms offer interest free periods, which can be a way that debt can be taken advantage of. The caveat to this is that you should have a proper budget in place or a plan to make sure you avoid paying interest on your new shiny fridge

Debt can be bad

  • If used to purchase consumer goods or a luxury round the world trip where you do not have the cash to pay for the experience or product, this can lead to financial strain
  • For assets that in most cases do not appreciate and grow in value i.e. cars or that new shiny boat this could be another sign of bad debt
  • Purchasing an item to "keep up with the Jones'" is generally a bad purchase, make twice as bad if made on credit
  • Where you are paying your minimum amount generally this means you will pay a significant amount more interest on your credit card then what you should be 

Taking a look at both sides of the debt "coin" it genuinely is neutral and what will determine whether it is good or bad is how you use it.

We'd like to say that before making any specific financial decisions you should consult a financial professional.

To finish off with a swell quote

“Too many people spend money they earned, to buy things they don’t want, to impress people that they don’t like.” ― Will Rogers

What has been your experiences with debt? Which tips would help you to become more informed about your money? What goals do you have with your money in 2016? :)

Live your money glee!