For
bankruptcy go to Bankrupt
For CCJs go to County
Court Judgment For missed payments go to
Mortgage
Arrear or Car
Cover
Good
Debt vs. Bad Debt
A
great deal of financial advice today centers on getting
out of debt. If you can afford to pay cash for everything
without wiping out your emergency reserve funds, then
that’s probably the way to go. But most people
don’t have an extra £200,000 lying around
to purchase a house or even an extra £10,000 to
purchase a car. That’s why it’s important
to distinguish between good debt and bad debt.
Bad
Debt
Bad
debt involves going into debt over disposable items
or items that lose their value almost immediately after
purchase and/or over items that you don’t really
need and can’t afford to pay cash for. Bad debt
is usually unsecured. In other words, if you default
on the debt, there is no property that your creditor
can repossess to make up his losses.
Probably
the best example of bad debt is credit card debt. Credit
card debt is unsecured, and most of the items charged
on credit cards are “luxuries” such as vacations,
expensive new clothes, new furniture, etc.
Good
Debt
Good
debt is debt that ultimately increases your net value
or creates more wealth. Good debt is often, though not
always, secured. Interest on good debt is often tax
deductible. Examples of good debt include purchasing
a house (which will increase in value) or getting a
student loan (which
will enable you to further you education and make more
money in the long run).
Even
if a purchase qualifies as good debt, it’s important
to look before you leap. Even “good” debt
can get you into deep trouble financially. If you default
on your credit card payment, most credit card companies
will do nothing more than send some demanding letters,
while your credit rating will take a hit. If you default
on your mortgage, however, you will lose your home.
Car
Finance: A Grey Area
Cars
have characteristics of both good debt and bad debt.
They resemble bad debt in that they lose value dramatically
the moment you drive them off the lot. It’s also
true that many people buy much more car than they need
or can afford.
However,
cars are a necessity in many parts of the country. They
can be used to increase your wealth in that they give
you a reliable way to get to and from your place of
employment. Some jobs that involve driving (such as
home health or hospice nursing) require you to have
a car.
Therefore,
the best way to purchase a car is with caution. Do your
homework and blue book research so that you don’t
end up agreeing to pay more than the car is worth. Make
sure you’re buying only as much car as you need—don’t
get a bigger, fancier model to use as a status symbol
or to compete with the Joneses. Finally, don’t
let salespeople talk you into higher monthly payments
than you can comfortably afford.
It
might be worth a bit of research to help find a car
that won’t deprecate too much in value and given
the size of the purchase you’d be wise not to
leap in without first thoroughly checking listings for
used cars
– sites like Fish4 Cars are always worth a look.
You’d also be well advised to opt for competitively
priced loans,
such as offered by NatWest over car dealership finance;
these deals almost always offer poor value for money.
If
you do your car shopping carefully, your car can become
a good debt that you can use as a tool to increase your
overall value.
The
following APR relates to the above products only.
THE OVERALL COST FOR COMPARISON IS :-
8.9%
APR
The actual rate available will depend upon your
circumstances ask for a personalised illustration. |
As
mortgage brokers we have access to the sub prime lenders
from the market as a whole and may be offered special
exclusive deals only available to mortgage advisers,
so please contact us
for friendly assistance.
