The go-to example of bad debt – as used by the Federal Treasurer – is a credit card.
While credit cards play an important role in helping Australians to manage their everyday expenses, if used irresponsibly or mismanaged, they can quickly get out of control.
As Federal Treasurer Scott Morrison explained to a sceptical audience in the lead-up to the 2017 budget, good debt involves borrowing money to pay for an asset that’s going to add value or provide future benefits, whereas bad debt involves borrowing money to cover the cost of something that won’t provide the same kind of long-term value.
These principles not only apply to federal budgets, but to everyday household budgets as well.
Making your payments on time every time is the most important factor in your creditworthiness.
Making less than the minimum payment due will likely result in the account being reported as past due on your credit report, which will negatively impact your credit scores.
To get myself debt free in the next 3 years and get my life back on track.
At worst, they’re debts where interest, fees and other charges keep growing faster than you can pay them off, turning your otherwise innocuous loan into an inescapable spiral of increasing debt.
Here’s how to determine what good and bad debts you owe, and how you can use your good debts to help you manage any bad debts: It’s true (from a certain point of view) that debt isn’t automatically a bad thing.
A reasonable level of well-managed debt can allow Australians to enjoy lifestyle benefits and luxuries, or make progress towards goals that they’d never otherwise be able to achieve. Yes, buying property involves borrowing a sometimes staggering amount of money, and can make a major impact on any household budget.
Remember to carefully consider your financial situation before applying for a car loan.
The simplest way to get rid of bad debt is to just pay it back, though this is rarely as easy as it sounds.