Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.


How to use good debt rather than bad debt

23 September 2016, 18:05

Johannesburg - You might be surprised to know that there is such a thing as good debt. Obviously we should all try to avoid getting into debt at all, but it's also smart to look at some types of debts as investments that create wealth for us.

How to use good debt rather than bad debt

Unless you're very fortunate, debt is something you will have to contend with during your life. You may already have some form of debt, possibly a student loan or, on a smaller scale, a clothing or book store account.

While debt is so difficult to avoid, we're usually advised to try and steer clear of it, and to eliminate it as soon as possible if we absolutely have to borrow money. So the idea that there is such a thing as good debt may come as a surprise to you.

Knowing the difference between good and bad debt in the context of an overall financial strategy is an important part of reaching financial stability or generating wealth.

What is bad debt?

Bad debt comes in a few forms. The most basic form of bad debt is money you borrow that you can't afford to pay back. We usually incur these debts when we make impulse purchases or buy something that we know we shouldn't, but can't resist.

Another common form of bad debt, which emerges particularly when times are tough, is the buying of consumable items like food or disposable products using a credit card. The problem here is that you're paying a high interest rate for non-durable goods, and unless you pay back the debt within the allotted time, your cost of living will shoot up, as you are paying so much more for the everyday basics.

One of the most popular forms of debt is, unfortunately, also bad debt - our credit account at our favourite clothing store. This is another example of borrowing money at interest to buy things that don't hold their value and end up disposable.

So what is good debt?

Types of good debt

Good debt is money that you borrow in order to generate wealth - to make more money. It is the type of debt that builds wealth over the long run, leaving you better off than you were. It is effectively an investment.

The most important aspect of a good debt, therefore, is that it must generate some sort of value. This can be tangible, in the case of a profit made, or less measurable, like the benefits of an education.

There are several types of debt that we generate wealth or serve as an investment.


The first and arguably the most beneficial form of good debt is educational debt, in the form of money you borrow to pay for an education. The reason why this is a good debt is that the education will most likely allow you to generate more income than the value of the loan. In other words, you'll make a profit, if we measure it only in financial terms. Of course, education has plenty of other benefits, which further increase its value and make it a good debt.


A house bond is another form of good debt. It is a straightforward investment in something that increases in value over time: property. The vast majority of home owners sell their properties for more than what they paid, making this form of debt a solid investment. The other benefit of having a house bond is that it allows you to borrow further money against it, which increases your financial flexibility - as long as the other debt you incur is also good debt, of course.

Debt consolidation

Yet another type of good debt that can improve your financial status is refinancing. If you are paying off a number of different debts at relatively high interest rates, it will become a lot cheaper if you are able to borrow a single sum at a lower interest rate, with which you can pay off the rest and only have a single source of debt.

Learning the good debt lesson

Now that you understand the difference between good debt and bad debt, and how good debt can be used to create wealth, you'll be able to make smarter financial decisions.

Start by reviewing your current debt - are you paying off a lot of different debts? Are some of the interest rates really high, compared to others or to the prime interest rate? If so, it might be worthwhile approaching a financial institution for a consolidating loan at a better interest rate, to end up with a single loan that will cost you less.

Next, look at your future plans and how you intend to fund them. Look at the all of the things that you will need to go into debt to achieve, and check whether they will cause good debt or bad debt. If the latter, try to find a different way to reach your goal.

And don't forget to look for opportunities. For instance, you might not have yet considered buying property, because you're scared of the debt. Now that you know this is good debt, you can take it on with more confidence, knowing that it will actually make you money.

* Do you agree with the idea that there is good debt? Add your voice by sharing your experiences, debt-busting tips and insights. Have a question? Ask our experts.

You can tweet @EduloanSA.

- Fin24


Read more from our Users

Submitted by
Shakila Alivitsa
4 ways to handle your cheating ma...

He is cheating. How do you handle him?

Submitted by
Shakila Alivitsa
Why do men choose second wives?

Why do men choose to have second wives?

Submitted by
Eugene Odanga
Wizkid set for twin Kenyan shows

Wizkid is back in Kenya. For two shows.

Submitted by
Eugene Odanga
Udada women's festival begins in ...

The Udada women's festival has arrived in Nairobi.

Submitted by
Uhuru pardons 2747 death row conv...

President Uhuru Kenyatta has pardoned a number of death row convicts, sending them to life sentences instead. Read more...

Submitted by
Eugene Odanga
WATCH: Kaka Sungura arrested in t...

Was Kaka Sungura arrested in town?