Despite the constant news about debt being bad for you, if it’s used responsibly, credit can be a valuable tool.
Lynette Kloppers, CEO of FNB Premier, said the ongoing debate around what makes good or bad debt is as old as the origins of money. Debt can either be classified as being good or bad depending on how you use it, as well as its overall impact on your financial position in the long term.
How to use debt
Wealth creation: When used as an investment – like buying a property which can be used for rental income – it can help consumers build future wealth.
Debt consolidation: Customers can allow a credit service provider to buy out their debt so that they only have a single account to pay off. Consolidated customers often have to pay off their debt at a lower interest rate than they had before.
Cash flow management: Using short-term debt like a credit card as a way to manage your monthly budget and still paying off the debt interest free within 55 days, helps you manage your personal cash flow.
Career growth: If you work in an industry that requires you to constantly be on the road, using vehicle finance to purchase a car could potentially put you at an advantage. The vehicle allows more independence, lets you do your job more efficiently and progress closer towards your desired goals.
Education: Taking out a student loan in order to study and secure a better job is valuable in the long-term.
Entrepreneurship: Many entrepreneurs start with a loan in order to fund their business.
When the business finally takes off, the entrepreneur can pay back the money owed with the profits made.
