Good Debt And Bad Debt And How It Affects You

Secured Loans

Secured loans are good debts because they are just using your own money to help you build a better future. Using the equity in your home instead of a 'new' debt means you will not be affecting your future too badly. In fact, with a secured loan you can save money each month by consolidating all your debts, which will cut down monthly outgoings. And one of these loans could even make money by refurbishing your home with the proceeds. A secured loan is a good debt because it's your money working for you.

Unsecured Loans

Unsecured loans, unlike secured loans, are just a lump sum lent to you without any back up. A secured loan is tied to your home, so in addition to low rates, if you cannot keep up repayments you have a safety net. But with an unsecured debt there is risk, which means a higher rate, and the terms are longer too so as to extract as much money from you as possible. And, of course, there is no safety, which means if you cannot pay you could face the loss of your possessions, prosecution and even imprisonment. Unsecured deals are a bad debt because they are a high risk, high rate gamble that will only cost you more in the long run.

Mortgages

Mortgages are the best debt to have. Not only does a mortgage allow you a roof over your head, but also it's a debt attached to the safest commodity there is. Many people may claim that now is a bad time to be shopping for a mortgage as house prices fall, but houses are still wildly inflated and most will agree that any drop will not last forever. That means you can be sure that your mortgage debts will pay dividends when you come to sell your most precious possession.

Credit Cards

Credit cards are bad debt because their rates are the highest around. Putting more things on the card every time you shop may seem like a small concern compared to your mortgage or your loans, but it all adds up. And credit cards, more than any other debt, are addictive. People become attached to them and become used to living beyond their means. Good debts are debt that helps you live as you earn, not by helping you live for today.

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