You’ve probably heard quite a bit about good debt and bad debt. But, what does that mean and how can I use debt to my advantage?

Put simply, good debt is usually associated with appreciating assets, in other words buying investments that may also improve tax efficiency of your income. But it may also be borrowing to improve your job prospects, such as a student loan.

Bad debt on the other hand are usually associated with discretionary spending. Such as on credit cards for luxury items, jewellery or clothing or personal loans for expensive cars, holidays or consumer goods. Typically this type of debt is not repaid in full each month and interest accrues at higher rates (than residential mortgages).

That said, the status of any debt can change rapidly if your circumstances change, it becomes unaffordable or you lack discipline to repay (on time!).


The key is discipline and having a clear strategy. Here’s some tips:

  • Understand what impact any debt you are considering will have on your overall financial situation.
  • Does it make sense, or are you bringing forward spending because you don’t want to wait?
  • Are investment markets trending up or down, do you have time to save more?
  • Ensure you have the capacity to repay on time so that you don’t affect your credit rating long term.
  • Have a contingency plan in place, such as a buffer of 3-6 months repayments set aside.
  • Protect your income with an insurance plan.

Use debt wisely and it can help you to build wealth and achieve financial freedom sooner through having more capital working for you. There are some traps, especially if you lack financial discipline or don’t have your finances set up correctly.

If you want personalised advice on debt and whether it’s appropriate for you in your circumstances, give me a call to book an appointment.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

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