
10 tips to help you save money on your shopping trips
• 5 years agoAs inflation and import costs have risen, shoppers have been hit with bigger bills when… Read more »
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However, not all debt is “bad” debt and the main question to ask yourself before borrowing any money is that debt affordable and manageable for me in my current situation?
Loans taken out to buy a house, grow your business or invest in your future education are usually seen as the gains outweighing the debt you owe. This is because, in these instances, you are likely to have taken out the loan as a way of investing in your future by enhancing your career prospects or allowing you to own a home for you and your family.
As a result, these types of loans and debts are likely to be classed as “good” debts, especially by those who took the debt out in the first place. If you researched the loan and made sure you found the best deal then you will probably view yourself as better off in the long run.
However, the debt will need to be affordable for your current situation so that you can ensure you will pay back the debt, meet monthly repayments and find those repayments manageable for your current financial situation. If debts start to become unmanageable then this is when problems are likely to arise.
Using credit cards or a bank overdraft facility is ideal for covering unexpected expenses or short term cash shortages. The danger signs are when you need to rely on credit to meet regular expenses and outgoings or where you are permanently in your overdraft facility – particularly if you are getting deeper in debt every month.
If you know that you can afford the repayments and manage your money then something such as a credit card can be a useful option to boost your affordability and grow your credit report as long as you meet the minimum repayment each month and pay down balances as quickly as you can.
The Bank of England is worried that people are taking out credit cards and loans to meet costs such as regular bills, breakdowns or other necessities which can be a sign of a financial struggle to manage household or personal finances without the fall back of credit.
In a perfect world we would all:
…but we don’t live in a perfect world and sometimes despite our best efforts what seemed like a good loan when we arranged it suddenly turns bad perhaps because of changed circumstances.