Good, bad & ugly debt

While it’s hard to say that any debt is ‘good’, there are acceptable circumstances for having it at times. But some is bad and some is downright ugly when it comes to your financial health.

GOOD DEBT: A mortgage, as long as the repayments are comfortably within your means to service. Business loans so long as they have been thoroughly calculated by your accountant or bank to be appropriate to the return and considered risks.

BAD DEBT: Hire purchase on cars, boats, and furniture. This is often at 14% or higher. On average, new cars lose 60% of their value within the first four years! Consolidating all debt (apart from the mortgage) into one large loan is also rarely in your interest. Think very carefully about all your options before doing this.

UGLY DEBT: Unpaid credit card debt This is usually between 16% and 23%. Cut them up! Owing money to friends or family is also an extremely bad thing to do. Expect to destroy the relationship.

And remember that with all debt, there are many reasons it can turn really nasty, which are beyond your control. These include death or interruption to your income, or asst destruction (house burning down).  So adequately insure yourself against such eventualities. We can help.