With the new year well underway and the cost of living still biting, it’s prime time to look at personal finances and whether there is such a thing good debt or bad debt.
Your home loan could be a good debt if it meets your personal objective of buying a family home to secure your future and once you pay down the debt to a manageable level, you extract the equity to invest and accumulate further assets outside the family home.Both these examples might become bad if they were not meeting your objectives or were at odds with your financial situation. The bottom line: any debt is bad if you can’t pay it back.
Also consider what types of loans are accessible to you and compare the interest rates for each option .The important point when interest rates are at higher levels than investors are used to is that it’s more crucial than ever to keep up with loan repayments. Otherwise you risk losing that investment or having to sell and not realising the investment’s full value.Property is a popular investment in Australia, but it’s not going to meet everyone’s goals.
One consideration in a tough economy: compared to shares, property is not flexible and not liquid. If you need funds in an emergency, you can’t sell off eight square metres of bathroom to liquidate money – you must sell the whole thing.Steven SiewertBefore you take out any debt, think like a lender and stress test it. Lenders model whether you can afford to service that debt, based on your cash flow, the economy and interest rate outlook.