When it comes to debt there are really only two types - 'good debt' and 'bad debt'. What is meant by bad debt is debts that are considered relatively short-term and 'unsecured'. As such they are subject to higher interest rates and can quickly spiral out of control if not monitored.

 

A classic example of a bad debt is credit card that has reached and even exceeded its credit limit. The banks pile on the interest making the cards longer and harder to pay off.

 

It is also for this reason that banks 'reward' responsible credit card users with higher credit limits in the hope that they will entice the card holders to make large purchases and thus subject themselves to higher levels of interest.

 

Good debt, on the other hand, is completely different. Owning and paying off a property via a home loan or bond is considered a good debt simply because its gives the home owner more options.

 

Options meaning that banks and financial institutions offer home owners greater flexibility in terms of lower interest rates and additional home loans.

 

Often, interest rates on credit cards and personal loans are double or even triple the interest rate charged on a home loan.

 

This is because houses, flats or clusters are considered unmovable assets and, as such, act as great or 'concrete' security against the money that banks have lent to home owners in the past and will in the future.

 

A bond or mortgage is the cheapest form of debt so it is always worth while to pay off unsecured debts via a mortgage or home loan and thus save heaps of money in interest each month.