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Is All Debt, Bad Debt? Part 2

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Is All Debt, Bad Debt? Part 2

Mike De Sousa

We hear a lot about consumer debt and household debt through media sources, and all this talk about it can be overwhelming, especially when we don’t know all we need to know about it. A lot of things we don’t know much about tend to scare us. I suppose that’s why they call it the “fear of the unknown.” So, in the efforts of debunking the fear (or at least reducing it to a manageable size) let’s take a walk through some of the main terminology when it comes to differents kinds of debt.

Consumer Debt Versus Household Debt

Consumer Debt

Consumer finances like credit card debt, payday loans, and student loans are considered to be consumer debt.

Household Debt

Household debt pertains to all the money you owe, which includes consumer debt ply any money (like mortgage loans) that you owe the financial institutions.

What Does it All Mean?

From a basic financial standpoint, you ideally want to limit the amount consumer debt you have, as those charge the highest interest rates. While it seems easy to miss a credit card payment here and there, because unlike secured debt (check out our Part 1 blog post), there is nothing tangible, like a car, that the credit card company can come repossess. However, the amount you owe can really start to grow when you add interest to it, so it’s important to stay on top of your payments.

On the other hand, a mortgage loan is actually considered to be a better form of debt, because the interest rates are a lot lower. You are also investing in something that is increasing in value, so long as the real estate market and house values are continuing to rise. Student loans are also considered preferred forms of debt, because the interest rates are lower and it is seen as an investment. However, if you are looking at taking out a student loan, make sure you have a plan in place to pay it off. Depending on your field of study, it can sometimes be a challenge to find a job upon graduation, which is something to keep in mind.

There’s also the notion put forth by a recent article in the Financial Post, that when an individual gets a mortgage for a house, they become more modest with other forms of spending in the efforts of paying down their mortgage.

Not only are we licensed mortgage brokers, we also have experience with debt consolidation in London, Ontario. If you are looking to stop worrying about your debt and start managing it, get in touch with us. We’ll get you on a plan that makes sense to you, so you can start the journey of repairing your credit and getting you ready for the next step in the journey of your life.

Thanks for reading!

Mike De Sousa and Mindy Small

Your London, Ontario Mortgage Brokers