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What is Good debt vs bad debt?

Good debt is money that’s owed for things that can increase or help to increase your income over time. These include mortgages and student loans.

Bad debt is money that’s owed for things that won’t improve your financial situation. These include credit cards or consumer store cards.

Why are so many people in debt?

The current financial situation in the UK has seen many people go into debt. Typically, households are spending more than they are earning. Spending is usually on mortgages, credit cards and other household spending. It helps if homes can separate necessary borrowing and unnecessary spending.

Dad debt explainedbad debt vs good debt

Bad debt is the debt that is accrued by buying or spending on items that quickly lose value or do not generate a longer-term financial return. Bad debt can also be debt that has a high-interest rate, such as credit cards.

Bad debt is basically any type of debt that takes you further into the red – in other words, debts that you don’t have an ability to pay off.

Bad debts include credit cards with big interest rates (these can quickly spiral out of control), expensive overdraft facilities or high-interest loans that you take out to cover unexpected expenses or to reach your next payday.

Any form of debt can turn into bad debt if you are unable to pay it off, so think carefully about whether or not you can afford the repayment for any form of loan, credit or personal finance before taking the plunge.

One of the simplest ways of solving issues with bad debt is by taking out a consolidation loan to pay these debts off, leaving you with a manageable monthly payment over a fixed term – and that’s where the team at Debt Consolidation Loans can help out.

Is 5000 in debt bad?

£5000 in debt might look bad but it depends on what type of debt it is and what position you are in. Don’t forget that mortgages and student loans do count as debt, albeit good debt. If your debt is for consumer debt or credit cards and you can easily afford the monthly repayments, then it could be said that £5000 in debt is not bad. If you are in £5000 in debt and you are struggling to make the monthly payments or you have several loans that are difficult to manage, you might want to consider a debt consolidation loan which means that you will only have one affordable monthly payment and just one interest rate.  

Am I on the bad debt list?

To find out if you are on the bad debt list, you should get in touch with the UK’s ‘credit reference agencies’ (CRAs). These are companies that collect and manage information on how well you manage credit and make your payments.

There are three main CRA companies – you may have heard of them. They are:


Each of them holds a file on you, which is called a credit report or a credit file. The information held by each company may differ so you might wish to access all three reports.

How bad is student loan debt?

A student loan might feel like a debt; however, a student loan is considered to be a good debt. A student loan is a government loan and it will make it easier to think of it as a graduate tax. Student loan repayments kick in after you graduate and match the level of your income. Many student loan repayments are made through employers so you may not even have to deal with the repayment yourself. There is also a chance that your loan may be written off before you finish paying it off. Student loans, depending on the type of loan, will be written off if not fully paid off after 25 or 30 years from the April your first repayment was due.

Are car loans bad debt?

An affordable car or other vehicle loan purchased with credit is considered to be good debt as it is an asset that should offer a solid, long-term return on your investment. While cars and vans will go down in value over time, this good debt is measured in the benefits that it provides you with, especially if this helps you to get to or to carry out your work. A car loan can become a bad debt, however, if the purchaser opts for a wildly expensive and unnecessary vehicle.

Is long term debt bad for you?

Mortgages are long-term debt, although they are considered to be a good debt. However, paying off bad debts – such as credit cards debts – can become draining, especially if you are struggling to make repayments. In this instance, it could benefit you and your wellbeing to consolidate your debts into one manageable loan, with one monthly payment and interest rate.

How to calculate bad debt percentage?

To calculate the percentage of bad debt, simply divide the total amount of monthly or yearly bad debt by your monthly or annual income. Multiply this figure by 100 to get your calculation.

When can you write off a bad debt?

You can write off bad debt, but it does very much depend on your circumstances and your creditor’s circumstances. To write off a debt, a creditor will no longer chase you for payment. Creditors tend to only write off debts in exceptional circumstance. You would need to approach your creditor to start the conversation, however, a debt consolidation loan for bad credit may be a more useful option which allows you to take control over your debt and payments without having to ask for a loan to be written off.  

How long does bad debt stay on your credit report?

Negative debt information will stay on your credit report for around 7 years. This includes late or missed payments, accounts sent to collection agencies, accounts unpaid as agreed or bankruptcies.

How to remove bad debt from credit report

If negative information is on your credit report in error, you can approach the Credit Reference Agency to get it amended. If the information is correct, it’s unlikely you can get it removed. If you feel this unfair, then contact your lender. Lenders might remove a negative marker that has no impact on your credit score – like one missed payment – but they don’t have to and are likely to look at your relationship with them before deciding.

How to manage bad debtsdebt management

You can best manage your debt if you know how much you owe how much to, when your repayments are and how much you are paying in interest. You may want to decide which debts to pay off first. However, a debt consolidation loan will help you take charge of your debts and do the above for you. You will then only have one monthly repayment to one lender and with one interest rate.

How to fix bad debt

The best way to fix bad debt is to take positive action. There are several options that will help you address your bad debt but they don’t all have the same outcome for you. A Debt Relief Order (DRO) might work for you if you are on a very low income. Freezing your debts for one year, your debts are then reviewed again and written off if your circumstances have not changed.  An Individual Voluntary Arrangement (IVA) means that you can pay back what you afford over a set number of years (often 5 years), with the balance written off at the end of this period. However, this is a legally binding agreement that both you and your lenders must stick to, regardless of any changes in circumstance. This will feature on your credit report. Bankruptcy means that you can write off all of your debts at once, using any assets you have to pay off your debts. This will show in your credit report and can make getting future credit impossible.

A straightforward and more workable option which won’t impact your credit report is a debt consolidation loan, which brings all your loans together into one, with one monthly payment, one lender and one interest loan.  

Is all debt bad?

No, debt is considered to be wither good or bad. Good debt is money owed for things that build wealth or increase income, like a mortgage or student loan. Bad debt is debt that’s been accrued on credit cards or consumer debt that will not improve your long-term financial outcome.

Good debt explainedYoung couple sitting on couch in front of psychologist and listening to her advice at meeting

Good debt is money that is owed for things that build wealth or increase income. These include a mortgage or a student loan that will help to improve your long-term financial outcome.

In essence, good debt is any form of debt that will contribute to your future financial security. It should not leave you unable to pay it off or put you in a financially worse position at the end of it.

If you take out any form of credit or loan, you should have a specific reason for doing so, and have made plans to pay the debt off as quickly as you can, and via regular, manageable payments.

A classic example of entering into good debt is taking out a mortgage, as you end up with an asset in the form of your own home once you’ve paid it back. Another is using a loan to consolidate several unmanageable debts into a single payment, with a fixed repayment term.

Other examples of good debt include student loans (as you’re investing in your education in order to achieve a higher future income) or a loan for a car (because you may be able to use it to find work you could not otherwise reach).

How can debt be good?

Good debt is money that is owed for things that will help to secure your long-term financial outcome. This includes a mortgage for a house purchase or a student loan for higher education. Good debt can also include a car loan if the purchase is affordable and not immeasurable to your income. However, a car loan that is vastly in excess of the vehicle that you need would be considered a bad debt.

Is it good to have no debt?

Having no debt could be your ideal situation, however, if you have zero debt, you will be unlikely to have a good credit report. If you do not borrow and repay, it is likely that you could have as poor a credit report as someone with a lot of bad debt and repayment problems.

Is a mortgage a good debt?

A mortgage is considered to be good debt as a mortgage is defined as a debt that is money owed for something that will help to build or increase wealth over time.

Are student loans good debt?

A student loan is good debt as it is a government loan that will help you to increase your financial outcome over time, rather than a consumer debt for goods that will not improve your outcome.

A good debt to income ratio

A debt-to-income ratio (DTI) is a measurement that compares your debts to your income. Lenders use it to measure your repayment abilities when considering your application.

Lenders are receptive to debt-to-income ratios below 36%, with no more than 28% of that debt going towards mortgage repayments.

Is Long-Term Debt Is Bad For You?

Is long term debt bad for you? Most people in the UK are in debt to some degree. Whether it be a mortgage, a business loan or university fees

Nearly everyone will have borrowed money at some point, and will currently be in the process of paying it back.

Taking on debt is, on the surface, not a bad thing; it allows us to afford things that we would otherwise not be able to purchase, and when managed properly, will not be detrimental to one’s life. The issues arise when debt begins to mount, when they are not consolidated properly, and should the person in debt refrain from paying altogether.

However, aside from the obvious financial problems, did you know that have excessive debts can cause an array of other issues?

1. Debt Can Result In Significant Health Issues

Research has quite conclusively found that debt can be incredibly detrimental when it comes to people’s health. According to an array of studies, having debt can result in ulcers and migraines in some instances, and can even be a contributing factor in heart attacks. Similarly, debt is also liable to result in mental health problems, with specific reference to anxiety and depression, especially when it cannot be managed properly and when it continues to be exacerbated by hidden fees, or by a failure to consolidate.

2. Debt Can Hamper Your Credit Score

This is quite well known but worth highlighting nonetheless. Your credit score, which can ultimately play a massive role in significant financial decisions such as whether you will be accepted for a mortgage, is hugely dependent on your debt history. Around one-third (30 per cent) of your credit score is determined by debt.

3. Debt Can Encourage Poor Spending Habits

The ability to purchase items via credit, or to pay for items over an extended period of time, can result in poor spending habits because it is difficult to keep track of how much has been spent, and things can look far cheaper than they actually are. This could be incredibly detrimental financially and could lead to masses of debt being amounted quickly.

So what can be done? The key is not to be afraid of the idea that debt can cause problems, but to find out how best to manage your debts, and find solutions that will ensure you can pay them off in good time. For example, many people choose to take out debt consolidation loans to make paying off their debts easier to manage. Contact us today to find out more.

Are debt consolidation loans good or bad?We can help!

Debt consolidation loans can be a really useful way to help people take back control of their debt repayments. Rather than file for bankruptcy or an Individual Voluntary Arrangement (IVA), a debt consolidation loan brings together all debts and creates one manageable monthly payment to one lender and with one interest rate.

We offer Debt Consolidation Loans for homeowners.

Our team is on hand to help with number of questions you may have.

If you are struggling with debt, please visit Money Advice Service for help and advice.

We are a broker, not a lender.

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