Is borrowing money a bad thing? –
It’s really common to need to borrow money at some point (even celebrities do it!) – but is getting debt a bad thing?
Today we’re weighing up the pros and cons of borrowing money, and what can happen if it goes wrong!
Disclaimer: This website provides information for guidance and educational purposes only. The Grown-Up School does not provide regulated financial advice. You can seek independent financial advice from a suitably qualified and regulated professional advisor. Check out our disclaimer policy for more information.
What is debt? 💳
Debt is where you borrow money from someone.
Usually people borrow money to pay for things they could not normally afford.
Most of us need to borrow money at some point, and it’s not always a bad thing. The most important thing is to borrow safely and sensibly.
“Good debt” vs “Bad debt” 👍👎
Some financial advisors say that there are two types of debt:
Good debt: 👍
You get paid back more than what you put in.
e.g. you borrow money to buy a house, and the house goes up in value (you make money from it!).
Bad debt: 👎
You get paid back less than what you put in.
e.g. you borrow money to buy a house but the house goes down in value (you lose money from it!) .
Whether it’s borrowing for a house, a degree, or new TV, you can ask yourself this question:
Will this debt pay me back more than what I put in?
If it’s not going to earn you money in the long run, is the debt worth it?
There can be other factors to consider though that aren’t just “will I make money?”.
When you’re considering taking on debt, it’s a good idea to weigh up all of the pros and cons of taking that debt on.
Pros and cons of debt 📝
For a lot of people it can be unrealistic to only take out debt that will make you money in the long run.
This is why it’s important to weigh up the pros and cons of taking out debt for your situation.
You should consider your reasons for taking out debt really carefully!
Potential pros 👍
These might not all apply to your situation, but borrowing money might:
- Help you buy things you wouldn’t otherwise afford straight away
- Potentially make your financial situation a bit easier to manage
- Improve your quality of life with the things you buy
- Potentially make you more money e.g. buying something like a house that you could potentially sell for more money
Potential cons 👎
However, borrowing money can be risky, so it’s reeeaaaally important to know what you’re doing when you make the decision to borrow.
There can be a lot of risks from borrowing money – so you need to research them thoroughly before agreeing to borrow.
Some of the potential risks if you can’t repay the money include:
- Losing money
- Falling into a debt spiral
- Your bills increasing
- Getting evicted (having to leave your home)
- Your credit rating going down (What is a credit rating?) – (making it more difficult for you to borrow money in the future)
- Getting taken to court to make you repay the money
- Damaging your relationships with friends/family
- Getting a court fine
- Bailiffs coming to your home and selling your personal possessions to pay off the loan
- Money being taken from your earnings
- Going to prison
- Being made bankrupt
- Some of your utilities like gas/electric could get cut off
Deciding if debt is right for you 🤔
So borrowing money isn’t necessarily a bad thing.
It just depends on whether taking on different types of debt are right for you.
There are lots of factors to consider when looking at borrowing money – so do as much research as you can before agreeing to borrow!
Borrowing money might be suitable for you if you:
- can pay it back comfortably
- have received professional advice about whether you can afford the debt
- think there is a very low risk of you being unable to pay it back
- decide the pros of taking on debt outweigh the cons for your situation e.g. it’ll be easy to pay back and it’ll help you make more money
- are certain that you won’t end up in a “debt spiral”, where you struggle to pay back debt
- have a lot of control over your money and know how to budget well
- have stable income to use to pay back the debt
Borrowing money may not be suitable for you, if you:
- already have a lot of debt
- haven’t received professional advice about whether you can afford the debt
- are struggling to pay back existing debts
- want to borrow money to repay your existing debts
- don’t know how to budget and struggle to keep control of your money
- have unstable income which would make paying the debt back difficult
You can look for independent, regulated financial advice to help you to decide if borrowing is right for you (The Grown-Up School does not provide this!) –
In the UK, you can get free help and advice from places like:
- Your lender
- Your bank
- Citizen’s Advice
- National Debtline
- Your local government/council
So that’s it!
Debt can be both a good thing, and a bad thing, depending on your circumstances.
Hopefully you’re feeling more confident about understanding debt.
If you know any friends or family members who might benefit from learning about debt, share this post with them!
Finally, don’t forget to check out our similar articles below!
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