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Between credit cards, student debt, home loans and more, there are a myriad of ways to accumulate debt (and some serious stress).

But not all debt is necessarily bad — some forms of debt are actually considered good.

"The really simple way of looking at it is: bad debt is debt that's going to cost you money," says Brenton Tong, a Sydney-based financial planner. "Good debt is debt that makes you money."

With that in mind, we've ranked six types of debt on a scale of good to bad (including some on-the-fence debt), with the help of financial planners Mr Tong, and Jenny Kam.

And, boy, did they have strong opinions, with some debt labelled "evil" and "ridiculous".

Good debt

1. Student loan (HELP or HECS)

Why is it good?

Student loans are an investment in your future, potentially opening the door to more career options and higher earning potential.

They also have the best repayment terms of any loan out there.

"HECS debt is funded by the government, they're not normal loans in the sense that you don't have regular monthly payments. Your payments are based on your ability to pay it back," Brenton says.

"On top of that, it's 0 per cent interest," adds Jenny.

2. Investment/business loan

Why is it good?

These loans are generally considered good debt because they involve using money to make money.

Jenny says they're commonly used to purchase an investment property.

"A lot of people have built their wealth this way in Europe."


It matters how you use these types of loans.

"If you're just funding a loss-making business through debt, eventually you're going to get to a point where the bank is not going to give you any more," Brenton explains.

"You won't be able to afford the repayments, and it's going to be a very brutal end to your business life."

On-the-fence debt

3. Home loan (mortgage)

Such loans also help businesses expand and grow. "Provided you've got a methodical, data-driven, proven use for the funds (i.e. it's profitable), then business lending can be a very, very good thing," Brenton says.

Why is it good?

"A mortgage buys you the house, the house stops you paying rent, it gives you somewhere to live when you hit retirement," Brenton says.

"Generally, it is neutral [debt] because it's not making you money, but it's helping you to build something of value."

Jenny says home loans are also cheaper than many other loans, with interest "around 3 per cent currently, if you get a good one."

But she also describes home loans as a "necessary evil". Why?

"In Europe, there's very little chance you can buy a home with cash outright, and therefore it's a necessity."


A home loan can turn into a bad debt when people overstretch themselves. Brenton says in general, your mortgage payments shouldn't consume any more than a third of your income (just like with rent).

"But people will usually push themselves to 40 or 50 [per cent of their income]," without always consider the full cost of running a house (things like council rates, insurance, repairs, etc).

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