Should I get into debt?

Some debts are good, some are bad, and they all come with interest. So before you go ahead and borrow money, have a look at our tips to see if you can really afford it.

Man in a green hoodie sits on the steps to a building.

Borrowing money almost always ends up costing more than the original sum because you have to pay interest. So, you need to make sure you can handle all those monthly repayments. Here’s how.

1) Review your budget

You need to make sure that you’re managing your money in the best way possible before you willingly get yourself into debt. Read our articles about how to make a budget and how to manage your money well to work out exactly how much ‘spare’ cash you have at the end of each month. If you have zilch left, then you can’t really afford to take on any new debt … unless you cut back somewhere else. Once you know how much money you can use for debt repayments, you can start looking for deals.

2) Spend time looking for the best deals

Once you know you can afford the repayments, you can shop around. Interest – the amount you pay back when you borrow money– is calculated using an Annual Percentage Rate (APR). It gets pretty complicated but basically the higher the APR the more you’ll pay back. A good deal can save you a fortune over time. For more information on borrowing, read Money Advice Service.

3) Have a word with someone you trust

Are family or close friends an option? If you feel able to talk to them about your money concerns then you may be lucky – they tend not to charge interest and are more sympathetic than banks when you need to take a repayment holiday.

On the other hand, while your nearest and dearest may not charge interest, you could be getting into a world of emotional debt. So it’s important to have a clear discussion about what’s expected of you – when you’ll repay, and how.

If you don’t feel confident speaking to anyone you know about money, you can share your worries on our forums, in an online chat or call our helpline on 0808 801 0666

4) Don’t wait around to pay it all back

It may seem great to know that you don’t have to pay off your debts for possibly years, but don’t be fooled. The longer it takes for you to pay off your debts, the more interest you’re going to be paying. Loan providers know this and are often very sneaky, boasting about ‘minimum repayments’ to squeeze as much interest out of you as possible. Don’t bow to it – pay off as much as you can as quickly as you can!

5) There is, in fact, good debt and bad debt

Good debt is debt that will pay for itself in the long run. Good debts are planned, affordable and thought through.

A good debt is also one where you’ve researched what’s best for you in terms of interest rates, repayment times, and late fees.

Good debt examples:

  • A student loan, as you’re getting a great education off the back of it.
  • A mortgage. Once it’s paid off, you have somewhere to live and your home is likely to grow in value over the years.
  • An affordable car – so no, not a BMW convertible – so you can get to and from work, meaning you earn a living.
  • A good debt is also one where you’ve researched what’s best for you in terms of interest rates, repayment times, and late fees.

Bad debt is where you can’t afford the repayments comfortably and the debt hasn’t contributed much to your future.  Bad debts are usually caused by impulse buying or borrowing too much so the interest gets out of control – as tends to happen with credit cards.

Bad debt examples:

  • A massive holiday you pay off over time, with interest added: Holidays are great, but do you need your own private island in the Maldives?
  • New car/shoes/phone just because you want the best, even though you already have one. Just think how quickly the value of these things deteriorate.
  • Using payday loan companies – their tempting short term loans offer quick cash, but their insanely high interest rates mean that if you slip up and fall behind on payments you’ll quickly end up swamped in debt.
  • Test whether you know the difference between good and bad debt using this video quiz from MoneySavingExpert.com.

6) Rule out loans for paying your bills

This is also bad debt – but we’re betting you don’t care by this point as you’re so stressed by money worries. If you’re struggling to get by at the end of each month, ask for money advice before getting yourself into extra debt. Trusted places like StepChange and the National Debtline are good places to go. Read Money for Life’s article for more information about safe debt advice.

7) Think about the future…

You’re young and have it all in front of you. But the world sometimes bites a huge chunk out of people for no apparent reason – you get made redundant, you split up with a long-term partner, or you break your back and have to be off work for six months. Before borrowing money, consider how you’d pay it back if something big happened. How quickly would the amount you owe spiral out of control? What would your payment options be? Have a read of our article on saving an emergency fund.

More information