Smart borrowing: Why students should be aware of good and bad debt


The world is full of debt as private individuals owe, companies owe money, and sports stars earning incredible amounts don’t necessarily pay cash for their huge homes. The teams they play for are constantly juggling their finances, some finding loopholes that allow them to keep operating at a loss without falling foul of the sports authority’s regulations.

Countries, even those with vast amounts of gold stored in high-security buildings, may owe money. It’s a question of fluidity. If it’s not flowing in fast enough for your current requirements, you may have to borrow to keep operating, and you’ll pay it off eventually. These are examples of good debt. There is no shame in debt per se as you’re just doing what you have to do and paying it off over time in order to get ahead.

When Debt Goes Bad

A loan can be good for both parties. The borrower gets the means to keep working and earning. The lender earns interest and ends up with more money than they paid out. What screws everything up is when the borrower loses the ability to make the repayments. There have been times in recent history when everything was going so swimmingly that if you wanted to borrow money, you could do so quite easily. People racked up big overdrafts because when they reached the limit, they would just be given more.

Lenders wanted this to happen, because it meant they would end up making more in the long run. Then suddenly the good times ended, and businesses were struggling. Customers had less money and businesses had fewer customers. Those overdraft repayments were swallowing up salaries and the man in the street was in trouble. So, what is the advice when it comes to good and bad debt for students? Be careful, that’s all you can do. Don’t borrow more than you need. Don’t use some of the money you lend for practical purposes and the rest for having a good time. It’s important to be sensible as tuition is expensive.

Your First Credit Card

Millions of students that feel ready to budget are now taking out their first credit card when in college. This isn’t necessarily a bad thing so don’t be put off the idea. You’ll be getting extra capital to fund your expenses and you’ll start to build a good credit rating ahead of those that wait until after graduation to get a credit card. It’s important to shop around when choosing a credit card as there are plenty of options out there for students.

Review a guide and dig in to find out the finer details of the contract. If you do get approved, remember what we said earlier in this article; be sensible with your spending and use the money to improve your chances of graduating. In basic terms, we’re talking about using the funds to replace your old laptop instead of hitting the club at the weekend to buy drinks or shots for your newfound friends.