Mortgage Blog

Debt - The Good, The Bad, and The Reality.

October 24, 2022 | Posted by: Sharon Patton

Debt - The Good, the Bad and The Reality. 

By knowing the difference between good and bad debt, you can better manage, and reduce, your debt. When struggling to repay debts - credit card bills, car payments, student loans - it's hard to think of any debt as particularly good.
Think again, as it turns out, that is not exactly the case. Some debt is better or worse than others, and knowing the difference is important. Let's take a look below as to what the difference is between good and bad debt. 

The Good 

Good debt helps one get ahead financially. Good debt is like an investment - a home, a piece of land, or even stocks - it is taken on in order to purchase something with value that will increase in the months and years to come. 

The Bad 

Bad debt is used for the here and now. Credit cards are the most common example of bad debt. Most Canadians have more than one credit card and they typically carry high-interest rates. This means the balance can balloon in size, and usually has higher carrying costs. If not paid off, the carrying costs compound at a high rate and the amount owed just builds and builds. 

The Reality 

For potential homeowners, the difference between good and bad debt is important. Carrying high credit card debt, particularly balances close to the credit limit, can mean trouble for those trying to secure a mortgage. It can reflect poorly on personal credit history and rating. Banks also base their decision to lend for major purchases on the borrower's proven ability to repay; if the evidence isn't there, lenders may be less likely to approve the desired mortgage

If you are thinking about making your first home purchase, moving up in the marketplace, downsizing, or even getting ready to renew or refinance,
let's chat. It is good to know what you qualify for and have a plan in place for your mortgage needs. We are happy to take a look at your options and come up with a strategy that meets your financial goals. 

I look forward to connecting with you soon. 

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