Good Debt Vs Bad Debt

It is always important to start by making the right financial decisions, to better understand this let’s look at debt and the difference between the three types of debt - good debt, bad debt and manageable debt.

Good Debt can also be defined as deductible debt which is money borrowed for certain investments (shares, investment properties, business investments) that can help grow wealth whilst allowing you to claim any interest you pay as a tax deduction.

Manageable Debt is how you classify loans such as a home loan, it is defined as funds that can fund an asset that can further increase your financial situation/wealth. The downside to manageable debt is that the costs involved would be nearly double than the funds you have borrowed and it is not eligible for a tax deduction on interest costs, hence why it is in your best interest to reduce your mortgage as quickly as possible.

Bad Debt is borrowing money to spend on living, these debts can waste hundreds of dollars or more per year in high interest debts.

Credit Cards, personal short term loans are examples of debt types that can lead to

financial hardship and result in you literally throwing your money away, these should be avoided at all times or should be consolidated into your home loan where interest rates are much lower.