Good Debt/Bad Debt


Simply put, having a family is rewarding. It can also be expensive. It goes beyond the new expense of diapers and a fancy stroller in the early days. With an increase in groceries, dance lessons, child care or home renovations, financial debt can add up quickly. The smart thing to do is manage your debt wisely, without taking on anything you can’t handle.
First, make yourself familiar with the fact that there is good debt and then there is bad debt. Good debt means you are using credit wisely; investing in necessities or enhancing your net worth to better your financial position.

An example of good credit is buying a home. If you are like most Canadians you’ll need credit, along with your down payment, to buy that home. Get the mortgage plan that makes the most sense, with monthly payments you know you can afford. Over time, this type of credit helps you invest not only in building a home with your loved ones but acquiring a valuable financial asset.

SavvyTip: It’s also a good idea to get pre-approved for a mortgage before you go house hunting so you know what price range you should be looking in.

Bad debt is when you purchase things you don’t need, but rather want, and absolutely cannot afford. If you don’t have the money to buy a new sofa even though it’s on sale, it’s probably best to wait until you do. Overusing a credit card, especially one that carries a high interest rate, is an easy way to take on debt you don’t need.

Before you acquire any new debt, it’s a good idea to take a look at what you already have. If you’ve taken on a number of higher interest debts, you can consolidate them with a line of credit or personal loan. By joining them together you can reduce the amount of monthly payments you have to make, which will save you money.

Make debt your friend, and stick with the good kind. Nobody wants to be friends with the bad kind.

For more advice about using debt to your advantage, visit Get the information you need and download your own personalized Guide to Everyday Finance.

RBC Royal Bank


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