Benefits Of Being In Debt

Debt is certainly a hot topic right now with international bailouts top of the agenda for several European nations such as Cyprus whose savers and investors face footing a huge bill to cope with the country’s national debt. Closer to home in recent years we’ve seen several UK banks and building societies need government hand-outs to prop them up resulting in a potential £23 billion cost to the tax payer

But is debt really such a bad thing when it’s properly managed and money is invested in the right areas? There are in fact several benefits to having personal debt, some of which are probably quite surprising but firstly let’s take a closer look at defining good and bad debt.

Debt can broadly be assigned to two types good and bad. Good debt is that which may provide another form of income or allow you to invest in something which will increase in value while bad debt usually offers no long term benefit and is loaded with higher interest rates and risk of incurring further debt, has some useful examples of each type of debt

So what are the ‘benefits’ of being in debt and how can they offer you financial opportunities in the future?

Debt can improve your credit rating

Managing your debts well doesn’t necessarily mean paying them off quickly but when you setup an agreement for a loan or others forms of credit you acknowledge you have a responsibility to make repayments regularly and on time. Banks and other lenders assess determine how much they’re willing to lend to you based not only on your income and personal circumstances but also on your track record with previous debt, if you make your repayments in full and on time then lenders will feel they have reduced risk in lending to you and may be more easily convinced to lend larger sums.

Long term savings or increased income

I’ve already mentioned that there are both good and bad types of debt but in good debt there’s also significant opportunity to improve your personal finances when you invest in something now that will provide a much larger return later or offer financial saving in the long term. Mortgages and further education loans are perfect examples of this type of debt where the investment and the return could be a significant increase in property value over time or a job offering much higher annual salary.

Debt can help you learn more about finances

It may seem a bit wishy-washy but engaging in manageable levels of debt from an early age can actually help you learn a great deal about the financial world and improve your own financial circumstances in the long term. Experiencing the difficulties of managing debt and the euphoria of finally paying off the dark shadow of debt can actually be a very positive experience and reinforce your desires to only engage in debt agreements you can actually afford.

About the Author: Dave is personal finance blogger and owner of a resource full of tips and advice for investors, savers and for those keen to increase their personal wealth. His passion is exploring new opportunities for small sum investments & savings and sharing his financial experiences with his readers.

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