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Types of debt
In the world of debt, there are two main types to remember: the good and the bad. Ready to learn more? Let’s dive right in.
Good debt
Sounds like a typo, but good debt definitely exists and can help to improve your earning power and even generate income. We're talking about things like student loans, mortgages, or the costs of starting a business.
They all have two things in common: the potential to earn more money for you in the future, and they're manageable (in fact – all debt can be 'good' debt if you’re borrowing within your means and able to pay it off regularly). If it can help you get a better job, make more money, or even be sold off at a profit then you might have got yourself some good debt.
Then there’s the other side
'Bad' debts aren’t categorised by the purchases themselves, but more how and why you bought them. Essentially, anything you don’t really need, and borrowed beyond your means. Like dropping a massive purchase you couldn't afford (and don't need) on a credit card. Or getting a personal loan with minimum repayments that are out of your budget.
These debts are the ones you want to focus on clearing, to be able to focus more on how you can achieve your goals.
Brain hack
'Present Bias' (or 'Time Discounting') is our tendency to focus on the here and now rather than the future when making decisions, even if the future payoff would be much bigger. The good news is that being aware of this cognitive bias is the first step to overcoming it. How to beat the bias? Before you put in your credit card details, consider your long-term goals. Can you truthfully say that this debt will help you achieve your goals? If not, then that's your sign to back away.
Keen to learn some debt reduction strategies? It's time to take the next step.
Remember, always do your research and carefully consider all your financial circumstances and objectives to work out what is right for you! Seek independent advice and get assistance when you need it.
The information set out above is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. By providing this information ANZ does not intend to provide any financial advice or other advice or recommendations. You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances.