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December 18, 2018

Good Debt vs Bad Debt

72% of South African income is allocated towards paying off debt. In fact, several reports suggest that most South Africans are in arrears with their accounts and loans. It’s understandable that most people have an uneasy relationship with money, and that the word ‘debt’ scares many.

However, there are positive consequences when having debt. This is known as ‘good debt’.

Can debt be really good?

Good debt is something that will benefit you financially in the long-run. Examples of good debt include:

Home loan: You’re borrowing money to secure your home. This type of investment usually increases your net worth. Always remember to take a home loan that you can afford to pay off.

Investing in your education: A student loan for university or school is considered a good option because you’re increasing your skill set and knowledge. These will eventually increase your earning power once you enter the job market for your chosen career.

The debt you should be avoiding

This is known as bad debt and most South Africans find themselves in this situation. Examples of bad debt include:

Payday loans: They seem like a good idea the last week before payday but the interest rates are high and in the end, you’re paying a lot more than you borrowed. Also, most people find themselves in a cycle of continuously using this credit facility because a) it’s accessible to anyone with an ID and b) sometimes you’re trying to pay off previous loans with this.

Retail credit cards: The trick with this is to use responsibly. It can be easy to get carried away with a store account and end up spending most of your income paying off the credit.

If you want to build a positive financial legacy, then book your FREE seat at our property seminars, where you’ll discover how to use good debt to build your financial legacy.

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