When people are given advice on debt, the common line of thinking is to avoid it – with familiar sayings like “save for what you want, then pay cash”, and general warnings of the pitfalls of lending.<\/p>\n
However, not all debt is equal, according to credit reporting group TransUnion, which says that consumers should be aware of the difference between ‘bad debt’ – which can indeed land you in serious trouble – and ‘good debt’, which is sensible, well managed, and can help put you in a better financial position.<\/p>\n
“In 2019 precious few of us can afford to pay cash for a home, a car, our tertiary education or even furniture. In fact, having credit is practically essential to navigating modern lifestyles,” said TransUnion director Garnet Jensen.<\/p>\n
“The trick is to know the difference between good debt and bad debt, and managing your credit wisely.”<\/p>\n
Good debt<\/strong><\/p>\n According to Jensen, the rule of thumb is that \u2018good debt\u2019 is debt that is a sensible investment in your financial future: it helps you generate an income, or increases your net worth, for example.<\/p>\n Some examples include:<\/p>\n Bad debt<\/strong><\/p>\n \u2018Bad debt\u2019 is debt that drains your wealth and offers no prospect of paying for itself in the future \u2013 like vanity purchases that won\u2019t help you generate income.<\/p>\n Typical \u2018bad debt\u2019 items include:<\/p>\n Regardless of the type of debt, it\u2019s important to manage it properly \u2013 being smart with your money isn\u2019t about avoiding credit altogether, Jensen said.<\/p>\n “Good credit health is about meeting your obligations timeously to maintain a positive credit report. Any failure to keep up with your credit obligations can have a negative reflection on your credit report, which can have a longer-term impact down the line when it comes to securing credit in future.”<\/p>\n\n
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