What’s bad debt?
While good debt generally leaves you better off in the long run, bad debt does the opposite. That’s because it’s usually used to fund things that lose value the moment you buy them, such as clothes, entertainment and other consumables.
Examples of bad debt include:
Putting a purchase on plastic is all too easy, especially when it’s an impulse buy. The problem is, credit cards usually come with high interest rates. So if you only pay the minimum, you’ll be falling deeper into debt for an item that won’t go up in value or generate you an income.
Payday loans might be short-term, but they can be an extremely expensive way to borrow money, thanks to high interest rates, late payment fees and default fees.
Buy-now-pay-later (BNPL) services
Afterpay, Zip Pay and other BNPL services are forms of debt even though they aren’t classed as credit cards or loans. That’s because you’re borrowing money to buy something – then paying back the money in instalments over time. However, the danger comes when you don’t make your repayments on time – as hefty late fees can quickly cause your debt to grow.