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The difference between good debts and bad debts

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The difference between good debts and bad debts

Borrowing money and getting into debt is the only way for many people to afford to buy those important and highly valuable items, such as a house or a car. But before taking on any debt, it is a good idea to consider whether it is a good debt or a bad debt.

Not sure about the difference? A key distinction is the effect it has on your financial situation. Good debt has the potential to increase your net worth or improve your lifestyle in a major way. Bad debt, on the other hand, is typically used to pay for discretionary expenses and often carries high interest rates.

To help you make good choices when it comes to getting into debt, here are some general guidelines on each of these types of debt.

What is good debt?

Good debt is classified as what helps generate income or build your equity. It is typically low interest debt that has a positive impact on your financial situation.

Some of the things that fall under the good debt category include:


As most likely your biggest – and most important – financial decision, hire a home loan it is considered a good debt. Let it be a first house you are buying either an investment property or a holiday home, the properties can be used to generate income by renting them or as a source of cash flow and potential capital gains when the property is sold.

Of course, it’s important that you are clear about how much debt you can realistically afford when taking out a home loan, as too much of any debt can quickly turn into bad debt. Before you go shopping for a new home, talk to our mortgage team about Max Mortgages and get pre-approved, so you know exactly how much you can afford. Plus, if you already have a mortgage but are struggling to keep up with your mortgage repayments, our mortgage team can also work with you to help you refinance your current mortgage to a bad credit home loan that best suits your needs. This option can also give you the option to turn your other debt into your home loan to streamline your finances and keep your debt under control. To find out more about what our team of mortgage specialists can offer, call us on 0508 629 5626!

Home loan

If you own a home, your home is probably your biggest investment, so it makes good financial sense to maintain it properly. However, home improvement projects, such as replacing a leaking roof and updating a kitchen, can strain finances, and many homeowners can only afford these projects through a home loan, which is a separate personal loan used to finance home renovations and repairs. A home equity loan is generally considered good debt, as it gives homeowners access to the funds they need to increase their home’s value and make their home safer and more enjoyable to live in. If you are one of those homeowners who need to do a maintenance or repair project but don’t have the money on hand, we at Max Loans can assist you with a competitive home improvement loan to help you kickstart your business. your project. Depending on the size of the project and your financial situation, our Max Mortgages mortgage team can also help you raise your home loan to finance your renovation project. Talk to us to discuss your needs and options today!

Auto finance

For most people, the car is part of everyday life. Depending on where you work and live, it could also be an essential element. Having a car could put you in a better position to get or keep a job and earn an income. That’s why investing in a reliable car makes good financial sense and use car financing buying a car can be considered a good debt.

However, taking on high interest debt can end up being bad debt if not managed properly. Interest charges and other fees could make it more difficult to repay the car’s financial debt. It could also lead to the recovery of your car if you are unable to meet your repayment obligations. Working with an automotive finance expert, a Max Loans personal loan advisor, puts you in the best position to carefully manage your car’s finances and make sure it remains in good debt.

Student Loans

Education tends to have a positive impact on your financial and personal situation. Generally speaking, the more education you have, the higher your earning potential and the more likely you are to find a job. So education is seen as an investment in yourself and your future and, as such, is generally considered good debt.

What is bad debt?

Bad debts are those expensive debts that typically drag your financial situation down. Bad loans generally do not provide any return on investment; they are often debts used for discretionary spending or items that lose value. However, keep in mind that not all debt can easily be classified as good or bad. Determining whether a debt is good or bad for you also depends on how it fits into your budget and other factors. Some types of debt may be good for some people but bad for others. A holiday loan with fair rates, for example, it can be good debt if handled responsibly, as a favorable repayment history can be reflected in your credit scores and thus put you in a better position to qualify for better credit or terms in the future. However, it can be bad debt for someone who can’t realistically afford the repayments. Most bad debts have high interest rates or additional fees that leave you in a worse financial situation.

Sometimes, bad debts are just good debts that have gone bad. Perhaps you have taken too much debt and cannot realistically repay it. In this case, it may be necessary debt consolidation loans to help you recover your refunds again.

Here are some examples of bad debt:

Credit cards

Unless you are able to fully repay your credit card every month, overcoming high-interest credit card debt can be a huge challenge. This type of debt can have a significant impact on both your credit score and financial health if not used wisely. It’s best to think twice before adding more debt to a high-interest credit card, as they are often more financially profitable New Zealand loan available alternatives, such as personal loans.

Payday loans

High-interest loans, such as paycheck loans, are short-term, low-interest loans that must be repaid when you receive your next paycheck. These types of loans can quickly become toxic and often have very high interest rates and charges, making them significantly inaccessible. If you are struggling to pay off daily loans or high interest loans, get in touch with a Max Loans’ personal loan advisor, as we may be able to find a personal loan or debt consolidation solution for you.

Get on top of bad debt today

Taking control of bad debt isn’t easy, but it’s not impossible either. With the help of a Max Loans personal loan advisor, you may be able to transfer all your bad debts into debt consolidation loans which will not only help you write off your debt much faster, but will also positively affect you. on your credit score, making it easier for you to secure good credit in the future.

If you’d like to learn more about New Zealand loans or need advice on writing off bad debt, contact the Max Loans team today.

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This article was published by: Rachael Alexander by title: The difference between good debts and bad debts.

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