Borrowing money is easy these days and that’s why it’s even easier to get into debt.
But, not all debt is bad debt.
Having a debt management plan in place and understanding the different between good and bad debt could help you make better financial decisions.
What is good debt?
‘Good debt’ is when you borrow to invest to purchase wealth-building assets – meaning assets that are likely to increase in value over time and/or give you an income. Good debt may also be tax deductible. An example of good debt is borrowing to purchase shares or an investment property.
What is bad debt?
‘Bad debt’ is a loan used to purchase non-income producing assets and where the interest on the loan is not tax deductible. Using a credit card or a personal loan to fund a holiday or to buy luxury items are examples of taking on bad debt. Afterpay and Zip Pay are also examples of bad debt, often used to purchase day-to-day items.
Should you borrow to invest?
Borrowing to invest (also called gearing) may help you accelerate the process of wealth creation by allowing you to make a larger investment than would otherwise be possible.
This greater exposure gives you the potential to magnify your returns but can also magnify your losses. It’s important to have a detailed understanding about how your portfolio will generate income and how the loan will be re-paid before you implement gearing. Without this, you may cause harm to your financial well-being.
How can we help you with debt management advice?
Knowing how to manage your debt can help you take control of your financial future and manage your cashflow better.
We can recommend a debt management plan to help you pay down your bad debt whilst using good debt to build long term wealth, if that’s appropriate to help you reach your goals.
To make an appointment, call us on 03 9038 9449 (Melbourne) or 08 8461 9191 (Adelaide) during business hours. Alternatively, complete the contact form and a member of our team will reach out to you to make an appointment for you. We can meet face to face in our offices, and in capital cities. Video meetings are also available.