Following on from the guest post article about lessons you can learn from debt, this is a great time for us to have a chat about good vs. bad debt.
Does good debt really exist? Isn't it all bad?
Imagine the 3 scenarios below:
- You go out and buy a close to brand new [insert car of your dreams] car and put it on finance. You think to yourself that you've got 25 - 30 years more to pay off several new cars right?
- You decide that it's time to settle down, put some roots down and buy a place to live in for you and the family. You buy a large house cause at some stage you plan on having more kids, this makes sense right?
- You are in your 20's or even 30's and you realise that you want to work on some of your own projects in the near future. You hear friends buying properties, stocks etc for investments and consider if you should go into debt to help you work on those projects
Which of the above, if any, involves "good debt"? Unfortunately there aren't any prizes for guessing the above although that could be an idea right? ;)
The answer is that generally, not always and speak to a professional before doing this, is that where you are taking on debt to purchase an asset that is anticipated to grow in value and hopefully support your lifestyle.
The other 2 scenarios, while aren't terrible involve consumer debt (the car) and one in Australia that you generally can't then claim a tax deduction against (a house you live in). It really has to be your own decision based on what you want to achieve, your life circumstances. As always any of the above is not specific advice and you should see an expert before taking any steps or making any decisions or commitments.
What are your thoughts on good vs. bad debt?
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