For many people the word debt is something bad; but the majority of people will have some debt at some time in their lives and debt can be a very useful, and necessary, part of people's financial plans.

However, not all debt is equal. Some debt is more significant than others and could have more severe consequences if not properly managed.  Debt that is at a very high interest rate, not from a bone fide source, unaffordable or with unfair terms should always be avoided. 

But taking out a mortgage to buy a home, or taking out a loan from a reputable provider at a sensible rate to say consolidate credit card debt is a practical part of good financial planning.

The golden rules for all debt are simple:

  • The starting point must always be to look at a budget plan to see what can be afforded.  A budget plan can also help identify any areas of cost that could be reduced so reducing outgoings
  • Face the issue and get help as soon as possible.  Ignoring the problem will rarely lead to a better outcome and unpaid debt can have serious consequences 
  • Review reputable sources for loans - banks, building societies, workplace loans etc and assess the loan that provides the best fit with your needs
  • Credit cards are not a recommended source of finance if you don't intend to repay the debt in the same month or within the zero percentage charge period
  • Shop around for the best terms to suit your needs; repayment terms and interest rates will vary
  • Stick to the repayment plan but if there are times when you can't, make sure you communicate this with your lender; they may agree a short term variation to your repayment terms
  • Use your company's Employee Assistance Plan if your debt becomes a concern or unmanageable. Most EAPs have a debt counselling facility and they will be able to help quickly and confidentially 

Debt per se is not bad; it is only when debt starts at the bad debt (the wrong lender, unrealistic repayment terms, unaffordable) or when good debt becomes unaffordable that it becomes bad.