Is there such a thing as good debt? Let’s look at some guidelines.

If you are struggling with debt it can feel like a shameful thing.  It seems like everyone else has their act together and able to live within their means, yet you are struggling to make ends meet and keep on sliding further into debt.

In fact it is unlikely that everyone else is doing any better than you!   Recent figures from The Bank of England indicate that the level of unsecured debt (ie excluding mortgages) in the UK is now around  £200.8 billion- the highest since 2008.  £68.5 billion of this is on credit cards.  The amount the average household owes in unsecured debt is £7,413.

So if you are struggling with debt you are not alone.  But it is important that you now begin to take significant steps to deal with that debt.  It is also important to understand the difference between good debt and bad debt.

In an ideal world there would be no debt.  In that sense all debt is bad.  But if you currently have debt and your finances need sorting out then it’s time to make a fresh start.  Do not take on further debt unless it could be classed as “good debt”.  Let’s look at some guidelines:

• Is your debt a carefully considered decision rather than an impulse?
• Will the borrowing help you to improve your circumstances?   For example, for education or business or to get your finances in order once and for all?
• Have you looked around to make sure that you are getting a good deal for your personal loan?
• Are you confident that you will be able to repay the loan?
• Is your credit score currently able to withstand the process of applying for a personal loan?

If all of the above apply then consider going ahead with your personal loan application:   but do make sure that you keep up with the repayments and – if possible – repay it earlier than planned.

If all the above apply apart from the last one – ie your credit score is not currently very good due to circumstances beyond your control – then you may still be able to get a loan.  Some lenders do offer bad credit loans if your circumstances are now improved and you are able to afford the loan repayments.  But no responsible lender will encourage you to take on more debt that you cannot afford to repay.

So what is bad debt?

Bad debt is the kind of debt that keeps you awake at night and stops you enjoying life.  As a guideline, the Money Advice Service suggests that a No answer to any of the following questions indicates that you could be getting yourself into bad debt:

• Have I shopped around to get the best deal?
• Am I borrowing this money as cheaply as possible?
• Will I be able to cope should interest rates rise in the future?
• Will I comfortably be able to afford the monthly repayments?
• Will borrowing this money improve my finances in the long run?
• Do I understand the risks if things go wrong?
• Do I understand all the terms and conditions associated with borrowing this money?

So if you do decide to apply for a personal loan, make sure you are taking on good debt not bad debt.   Make sure you are getting a good deal in terms of the costs of the loan (interest rate plus any fees charged) and the frequency and term of the repayments.  Aim to borrow as little as you can and repay it as regularly and as quickly as possible.  

If you would like to discuss your loan requirements with Loans 2 Go you can either enquire online, call us on 0330 400 0403, What’sApp us on 07976 200 597 or email us on [email protected].