Is my Personal Loan Good or Bad Debt?

People often differentiate between debt by seeing it as either good or bad debt. Bad debt is seen as something which should be avoided whereas good debt is something that you should consider taking out. It can be quite confusing knowing which might be the best for you.

What is the difference between good and bad debt

It can be confusing understanding the difference between good and bad debt. This is because people have different opinions on this. Some people feel that all debt is bad and would never want to borrow. Some people think that all debt is good and borrow a lot. However, most people think something in between and that some is good and some is bad.

If you look for a definition of bad debt, then you could find different ones, which is another reason why it can be confusing. Usually bad debt can either be considered to be debt which you cannot manage, debt which was not well researched or debt which isn’t paying towards something useful.

To make sure that you can manage the debt, you need to find out what the repayments will be. Then look at your finances and see whether you will be able to afford those repayments. By looking back at previous months and how well you have managed your current bills, you will be able to see whether you will be able to manage a debt repayment as well.

It is important to research different types of loans as well as comparing the prices of loans. This will allow you to be able to find a loan which offers you the best value for money. This could save you money or make sure that you get the best service that you can for the money that you are paying.

Although the above are important it is what the money is spent on that most people consider when thinking about if a loan is good or bad. They may feel that if you are spending it on a necessity or something that will improve your life or situation then it is a good loan, but if you are buying a luxury that you can do without and will not impact your life that much, then it is a bad loan. However, different people will have different opinions on the importance of buying certain goods. This means that whether a loan is good or bad good very be down to a personal opinion.

For example if someone is buying a car, then some people might say that they could go without it and therefore this debt would be bad. However, if the car is for a job, which they cannot get to on public transport and the job pays significantly more than a previous job and the increase in salary covers the loan repayments and leaves some extra money, then this could be considered to be a good debt. However, if the job has a six month trial period, but the car is necessary to do that, it is more of a risk as you may end up with a car and a loan but no job after six months. Only you will know how risky that is, as you will know how likely you are to be offered the job full-time after the probation period. It could be an extremely difficult decision, especially if you are not familiar with the company and what they would expect form a good employee.

How to tell which type of debt you have

Therefore seeing whether the debt that you have is good or bad may not be that straightforward. You will know whether you researched the debt well and chose the one that gave you best value for money. If you did not do this, then it may be possible to switch lenders and move onto a better rate. To make this easy you can just use a comparison website to look at rates and then contact lenders to see if they would be willing to lend to you. Take out the loan and use it to pay off the current debt or transfer the debt to the new lender. This could save you a significant amount of money. This could therefore help you to manage the repayments more easily.

If you are still struggling with repayments then it might be possible for you to be able to reduce your spending to help things. Perhaps choosing cheaper products, switching to cheaper suppliers or brands or just buying less items that you do not need. It can be difficult to do, but some changes can be much easier than others. For example, if you switch electricity supplier it does not take long, but you could end up saving a lot of money without any noticeable difference to your lifestyle.

What you are using the debt for will also determine whether it is good or bad. Only you will know what you are using it for and whether this is likely to have a significantly positive impact on you or not. You will know all of the reasons behind the loan and how much you thought about it before you took it out. If it was for an impulse buy, then it is unlikely that you have good debt. However, if you bought a home or paid for university, then chances are that it was a good loan. If you already have the loan, then whether it is good or bad will make no difference to repaying it. You will have had the money and be in a situation where you need to pay it back. However, if you are aware of whether it was good or bad debt, it could have an influence on your future borrowing choices.

Remember, not all debt is bad and so you should not be afraid of it. However, it can be possible to be out of control with your debt. Therefore make sure that you carefully consider whether borrowing money is right for you at this particular time. Check if you can afford it, if you have chosen the loan which offers good value for money and if it is paying towards something which will really benefit you.