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Myth: All Debt is Bad
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If you’ve struggled with debt in the past, it’s completely reasonable to believe that all debt is bad. And it’s never a good idea to take out a lot of credit if you don’t need to. But there are quite a few benefits to borrowing, especially if you’re looking to improve your credit score. Showing that you’re capable of repaying money on time demonstrates that you can manage your money well, and can boost your credit rating.

The other key thing to consider with debt is whether you can use it to generate or increase your income. If you can successfully leverage your credit, it can be beneficial to have what is considered to be ‘good’ debt.

Buying Property

Investing in property, whether it’s your own home, or a buy-to-let, can be a sound financial strategy. If you’re buying a home, as housing prices don’t tend to depreciate, and are typically on the rise, you should expect to gain equity within a few years. A lot of people consider the property market to be the safest investment possible.

Purchasing accommodation in order to rent it out can also be a ‘good’ type of debt. The income you earn through rent will hopefully not only cover the mortgage repayments, but also provide a further source of income for you. Investing in a rental property is even considered to be a good alternative to a pension for some people.

Further Education

When people consider debt, student loans are often overlooked, but this is still a form of credit. As with a mortgage, you are investing in something (your education and future employment prospects) with the hope to see a return in the future.

Key Points

  • Getting into debt can be detrimental, but this is not always the case – some debts, such as a mortgage, are often thought to be ‘good’ debt
  • It’s often necessary to borrow money in order to have a credit footprint, and increase your credit score
  • It’s possible to leverage debt into income, if you’re using the money to invest in property, education or business

Taking out a debt consolidation loan can work ou to be a cheaper option for some people, though it can be a good idea to seek impartial advice beforehand

Starting a Business

If you’re looking to start a business, the likelihood is that you’ll need to borrow startup capital in order to grow. Borrowing in order to invest in a business can help you make a profitable return, so is often to be considered worth the risk. Depending on the type of business, you can also protect yourself financially, should anything go wrong.

Debt Consolidation

It’s important to remember that debt consolidation isn’t a good option for everyone. In some cases, you could just end up owing more money than before, so you should carefully consider your finances before applying.

The fundamental principle of a debt consolidation loan is to merge all your existing debt together, and just pay back the one loan. That way you’re not paying interest on several loans at once. This in theory should lower your monthly repayments, and allow you to pay back less overall.

If you are considering debt consolidation, there are a number of free services available that can offer help and advice. The Citizens Advice Bureau can help you determine whether debt consolidation is the best option for you, and recommend alternatives if not. The Money Advice Service also has plenty of information on their website concerning debt consolidation, and can put you in touch with an advisor if you wish to discuss your finances further.

Your finances are important to us, we would never want you to not have all the information to hand to make an informed decision. If you are considering a loan, My Financial Broker can help.


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