The difference between good and bad debt


I’m sure that most of us would love to live our lives debt free. Wouldn’t that be lovely! No home loan, no credit card debt – just every cent that you earn being spent – or saved – however you choose.

But there are two types of debt. Good debt and bad debt.

An example of good debt is a home loan or an investment loan. You’re borrowing money to buy an asset that will appreciate in value or generate income through rent, and then will make you money when you sell the property.

Bad debt is credit card debt or any debt that is incurred when buying things depreciate or lose their value quickly. Bad debt is the type of debt that you don’t want. Pay it off. Get rid of it. Don’t get any more of it!

You can usually tell the difference between good debt and bad debt by the interest rate. Home loans start as low as 2.5%. Car loans are around 5%. Credit card interest can be as high as 20.5%.

Good debt is nothing to be afraid of.

If you’re planning to build wealth through investing, you need to be comfortable with good debt. Creating an investment strategy and then using other people’s money to buy assets is smart. Your job is to make sure you’re not getting in over your head and to make sure your bad debt is kept to a minimum.

At Love Home Loans, we specialise in investment loans, home loans, asset loans and re-financing.

If you don’t have an investment strategy, we can refer you to a financial planner. We can refer you to an investment property consultant.

We can help you secure finance to buy your first home or build your portfolio.

Call, email or text and we’ll get the ball rolling.

Michael & Tanya
0405 113 543