500
Weekly
Fortnightly
Monthly

Loans from $2100 and upwards require a car, motorbike, boat or caravan to be provided as security. If you cannot provide security, please apply for $2000 or less.

The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

The Interest Rate for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

The Interest Rate for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.


When Does Debt Become ‘Bad’?


March 17, 2022

Going to university, buying a house or car, and taking out a credit card can all lead to unavoidable debt. You’ve probably heard about debts before, however, can you distinguish between different types of debt? And do you know when a debt is considered ‘bad’?

Learn more about good and bad debts with Good People Bad Credit today.

When is a debt considered ‘good’?

Something you’re probably not used to hearing is that not all debt is considered bad debt. If utilised and managed in a positive way, types of ‘good’ debt can help you increase your net worth, make the most of your cash flow, or enable you to access funds for wealth-building purchases.

Long-term investments for your financial future are therefore categorised as good debts as they give you the opportunity to purchase appreciating assets or help you better your earning potential.

Some examples of good debts include:

  • Taking out a mortgage;
  • Home equity – renovations that won’t over-capitalise;
  • Investment loans for business owners
  • Student loans (e.g. HECS-HELP loans in Australia) – increases the likelihood of stable employment and future earning potential.

Important tip: While this form of debt is unavoidable for most people, it’s important to remember that even good debt can turn bad if it’s not handled in the right way.

When is a debt considered ‘bad’?

The other type of debt is ‘bad’ debt. If not managed carefully, bad debt can harm your financial position by decreasing your creditworthiness and costing you more money in additional fees and interest charges.

If you’re not careful, it’s easy for bad debt to accumulate and get out of hand. Some examples of bad debt can include:

  • Payday loans;
  • Credit card debt;
  • Personal loans (for discretionary items).

If you need to make a large expense, like taking out a car loan, incurring a bad debt expense may be unavoidable in some situations. However, taking out a loan to cover discretionary items with a depreciating value, such as electronics or clothing, offers no form of long-term financial benefits.

So, while in some cases bad debt can be harmful, it can still be managed if it’s unavoidable. If you take out a loan to purchase a car and agree to make regular repayments over an agreed period, you’ll just need to ensure you’ll be able to make the repayments on time. It’s important to consider the additional fees or interest charges on your loan.

How to avoid ‘bad’ debt

If you’re not careful, it’s easy for bad debt to spiral out of control which can result in damage to your financial situation, creditworthiness, and borrowing potential. While avoiding all bad debts is unrealistic, there are some simple steps you can take to minimise your risk.

  • Avoid payday loans: This type of loan can incur high-interest fees and short repayment periods which could land you in a cycle of debt.
  • Shop around for credit cards: Avoiding high-interest credit cards can be a great way to reduce your spending on interest charges.
  • Pay off your credit card debt early: If you’re in a financial position to pay your credit card minimums early, doing this can allow you to avoid paying interest. Budgeting for more than the minimum can also help reduce your interest charges.

What is a doubtful debt?

A doubtful debt is a type of accounts receivable that may become a bad debt expense in the future.

This type of debt is usually common for businesses and to overcome it, businesses will open up a reserve account, otherwise known as a contra asset account. Businesses will estimate the amount of accounts receivables that could potentially become bad debts and input a credit into their reserve account for this amount, which is called the allowance for doubtful accounts.

For businesses tracking doubtful debts, there is action to take when a debt is declared bad debt. When a doubtful debt is classified as a bad debt, businesses will use a write off method on their balance sheet by debiting the reserve account and crediting the account for accounts receivable.

What to consider about ‘good’ and ‘bad’ debt

Classifying certain debts as good and bad isn’t a simple process as the way debt is classified heavily depends on your individual financial situation. If you’ve already accumulated some debts, some people may choose to take out a consolidation loan which allows them to borrow money to pay off existing debts.

This is classified as a form of bad debt, and while taking out more debt on top of your existing purchases may seem like a bad move, it may be an effective way to keep on top of other debts, depending on your financial situation. For example, covering your existing debt with a credit card could lead to higher interest rates, whereas choosing a consolidation loan to cover your debts could have lower interest rates.


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