Not all debts are created equal. ‘Good debt’ is defined as debt that helps you generate income and increase your wealth, such as borrowing money to purchase an investment property which may appreciate in value over the long term. Good debt is usually tax deductible and is often associated with tax effective investment strategies such as negative gearing.
In contrast, ‘bad debt’ involves borrowing money for depreciating assets that do not produce any income, such as paying for a holiday on a credit card without paying it off within the interest-free period.
Learning how to maximise good debt and bad debt is an integral part of your financial strategy. A financial adviser can help you make the most of your unique situation.