Healthy Debt v Bad Debt

At some stage in our lives, a majority of us will go to a financial institution to borrow money. A first car, first home, going to college, setting up a business, a wedding day, there are so many reasons we may borrow. Getting approved can be such great feeling. However, after a few months, some people may have more than one loan and might forget how long a particular loan is for or even the rate of interest being charged. For others, getting a loan might raise affordability questions or because they haven’t managed credit well in the past could mean they face difficulty getting loan approval in the future for more important needs.

Credit and debt has been in use for a long time. There is no absolute reason why we shouldn’t use credit and having some debt can help to support life events such as buying your first home, but how we use credit matters for our overall long term financial wellbeing. In this context, we examine the issue from a ‘Healthy debt’ and ‘Bad debt’ perspective.

Credit and debt has been in use for a long time. There is no absolute reason why we shouldn’t use credit and having some debt can help to support life events such as buying your first home, but how we use credit matters for our overall long term financial wellbeing. In this context, we examine the issue from a ‘Healthy debt’ and ‘Bad debt’ perspective.

Credit and debt has been in use for a long time. There is no absolute reason why we shouldn’t use credit and having some debt can help to support life events such as buying your first home, but how we use credit matters for our overall long term financial wellbeing. In this context, we examine the issue from a ‘Healthy debt’ and ‘Bad debt’ perspective.

To keep the concept of ‘healthy debt’ in perspective, it should generally be for supporting personal life events that you value. Another test for vetting the purpose of such debt would be to consider whether or not in 6 months’ time, you can still say with confidence that the debt has had a positive life impact. If you can, its healthy debt, if you can’t, it isn’t!

To keep the concept of ‘healthy debt’ in perspective, it should generally be for supporting personal life events that you value. Another test for vetting the purpose of such debt would be to consider whether or not in 6 months’ time, you can still say with confidence that the debt has had a positive life impact. If you can, its healthy debt, if you can’t, it isn’t!

Credit cards and personal loans can be convenient to access and monthly repayments may seem reasonable. However, as with all forms of credit and debt, interest adds up over time. Buying those new clothes from your favourite brand or that lavish night out at the fancy restaurant, while they may offer a short-lived feeling of euphoria, come with long-term financial costs that needs to be repaid. And when it comes to repaying credit card debt, it is unlikely the night at that lavish restaurant will be remembered by the time the credit card bill is repaid in full. If you haven’t got the money to begin with, sit back, pause and think before you spend.

When borrowing and debt is used wisely, it can really support your future financial wellbeing. So evaluate your options before you borrow. Ask yourself if a debt will make your life better over the long-term. Consider how debt aligns with your short term and longer-term money goals are. If debt can serve as a positive force in your longer-term financial wellbeing, then it is most likely healthy debt. If it won’t, it is most likely bad debt and you should think hard before taking it on.

The information contained in this article has been prepared by Bank of Ireland (“BOI”) for information purposes only. BOI believes any information contained in the article to be accurate and correct at the time of publishing.

Bank of Ireland is regulated by the Central Bank of Ireland.