There are many people who are in debt at the moment. In fact if you speak to anyone you will find that most people that are over 18 and below retirement age have some sort of debt. It can seem quite frightening that there are so many people that are in debt and many people actually want to free of debt. However, it is worth understanding a bit more about debt before you get into a panic about it.
Types of debt
It is worth knowing that there are two debt categories which are referred to as good debt and bad debt. Good debt is borrowing which benefits us and is affordable for us and bad debt is borrowing for no good reason and without thought. It is worth explaining these in more detail with some examples.
Good debt is something which many people have. This is something which helps us to improve our lives and can even save us money in the long run. Most mortgages are considered to be good debt as although the amount borrowed is large, the repayments can often be cheaper than rent and you end up owning a home which should increase in value. Although it is not an investment if you live in the home, as you will not be able to sell it if you want to continue being a private home owner, you will be able to sell it or leave it someone in your will.
Another example of good debt is a student loan. This is given to those wanting to study at university for the first time and will cover course fees and sometimes living expenses to those from less well-off backgrounds. The loans only have to repaid once the borrower starts earning over a certain amount of money and any money not repaid is written off after thirty years.
An element of good debt is to also make sure that you take out the right sort of loan and at the best rates. Comparing loans and thinking about which will suit you and which will be cheapest is so important. You also need to ensure that you are able to cover the cost of the repayments.
There are many types of bad debt. Any borrowing which is not for essential items can be considered to be bad debt. This means if you borrow money to pay for a holiday, landscaping your garden, replacing good furniture with new, buying jewellery or things like this. Basically buying anything which is not really necessary.
Also bad debt would be when you take out a loan without really comparing the cost of considering whether you can pay it back. Perhaps accidently going overdrawn when you have savings you could have used, using a payday loan rather than a credit card or something like this.
Being free of debt
It is now clearer that it is wise to want to be free of bad debt but having good debt is not such a problem. So letting debt stress you up is not necessary something that you should do and even paying off debt early may not be a sensible idea if you have student debt as chances are that you will not pay it off in full anyway.
Some people do find the idea of any debt stressful. They worry about being able to manage the repayments and whether it will be too big a burden for them. However, if you calculate before you take out a loan, how much you can afford to repay, then you should be able to manage. You can even take out insurance that will cover your debt repayments if you cannot manage them, although this will only pay out in very specific circumstances. If you go into a loan agreement confident that you will be able to afford to cover the repayments and knowing that the loan is worthwhile, then you should not have any reason to find it stressful.
Of course, it is certainly wise to do everything that you can to try to avoid a large amount of unmanageable debt. Always carefully consider what you are borrowing and why and try to avoid borrowing money when you have concerns about whether you can afford to repay it. Try to think about the future as well as the present, especially if the repayment term covers more than a few years and then you can think about whether you will be able to afford repayments in the future.
Sometimes we do get ourselves into situations where we are forced to borrow money and do not have much time to think about it and if this is the case we need to work hard to get that debt paid off as soon as we can. By cutting our spending as much as we can and possibly doing extra work to earn more money we should be able to do this.