(Picture: Ella Byworth for Metro.co.uk)

For most people, the idea of debt usually has negative connotations.

Contrary to popular belief, being in debt can also be a positive thing, and could help you secure everything from a mortgage to a higher overdraft limit.

That being said, We’re not suggesting that you rack up thousands in debt by signing up to a monthly payment scheme to pay off your clothes purchases, or get a credit card to fund that holiday trip with your mates.

Or, that you ignore your parking fines and end up with £30,000 in fees.


But good, manageable debt does exist: here’s how it works.



Why should you build up good debt?

‘In order for people to build up a solid credit history and gain a good credit score, some form of debt is required,’ Chloe Rowlands from TIC Finance, a company that specialises in property funding solutions and stopping house repossession, tells us.

‘Debt in general tends to be perceived as a negative, but it can in fact be positive. “Good debt” can in fact help you work towards a more financially stable and secure future.’

However, it’s not the debt itself that is the important aspect – it’s how well you manage to pay it back.

Essentially, what you’re looking to do is to build up your borrowing history and showcase that you’re a responsible debtor who is able to pay back the money they owe in a set time-frame and without any problems.

Doing this boosts your credit score, which lenders look at when you apply for loans to buy something substantial.

Chloe explains that the key difference between good and bad debt is that good debt increases in value over time or boost your overall net worth.

‘Good debt allows you to manage your finances more effectively, covers unforeseen financial emergencies and can teach you how to budget and manage your money effectively,’ Chloe says.

‘A mortgage is a great example of a good debt to have, as it’s likely the property can increase in value, meaning if you were to sell it in future you would gain more than what you have invested.

‘There are many different kinds of debt and ways to look at it, just be aware it isn’t always a negative thing.’

What is good debt?

Getting on the property ladder is getting increasingly difficult, but it’s not the only way to accrue good debt. Student loans or sensible business loans also fall into this category, and often improve your financial image.

Rebekah Gerry, financial well-being lead at Neyber, an employee benefit service, tells us that it’s possible to trick the system into believing that you’ve got good debt with the help of credit cards.

‘Many people are also able to ‘game’ the system – by taking on short-term debt via credit cards in order to get cash-back or rewards, and paying it off in full before any interest accrues,’ she says.

‘This is something that requires discipline as it can easily spiral out of control because of the high interest rates that kick in if the debt is not repaid in full.



‘Short-term loans, perhaps for a safer family-friendly car, home renovations and so forth, aren’t necessarily bad debt either, if they allow people to afford things that they need now but could take years to save up for – but obviously people need to be able to afford the monthly repayments.’

Examples of good debt As a general rule, in order to accrue good debt, purchases made with borrowed money need to increase in value over time – and the debt must be manageable. Property

Short-term loans for cars

Student loans

Business loans Keep in mind that it doesn’t matter if you’ve bought good debt, like a house or a car, if you’re constantly behind with repayments.

On the flipside, bad debt includes payday loans or not being on top of your overdraft limit.

Sure, you pay back that £1,000 you owe every month when your paycheck comes in, but if you’re always in the ‘red’, you’re not only paying fees but it’s also an unattractive trait to lenders.

‘Payday loans are what you might call “negative” debt, as using one suggests you are struggling to make ends meet,’ says Becky O’Connor, personal finance specialist for Royal London.

‘They also come with extremely high interest, which makes the chances of you needing to use debt again the following month even greater. Because of the likely reason for use and the high interest, with these, you are more likely to enter a debt spiral than other forms of more manageable debt.

‘Being constantly at or near your credit limit is considered a debt use “negative”. It suggests you aren’t really on top of repayments.

‘Lenders like you to be borrowing less than 50% of whatever credit limit you have.’

Examples of debt to avoid ‘Rolling debt’ with no end in sight – i.e. when you only pay the minimum amount on a credit card. ‘Background debt’ that you have no idea of the real cost of – i.e. a fixed-rate mortgage that’s reverted to the bank’s Standard Variable Rate, and which you could easily switch to avoid paying much more interest than you need to. ‘Stop-gap debt’ – i.e borrowing money to make a repayment on another debt. ‘Regular, high-cost debt’ – i.e going over your overdraft limit, when you could just negotiate a new limit, move some money around or get a credit card. Regularly using any expensive form of borrowing is a terrible idea generally – like regularly using high-cost short term credit (payday loans). ‘Irresponsible debt’ – i.e borrowing to gamble, or buying something you don’t really need. Source: Chris Lilly from finder.com, a personal finance comparison site.

Why are we so scared of getting ourselves in debt?

For some people, being in debt can cause a lot of stress.

According to research by N26, an online bank, 9.5million Brits suffer mental health issues because of money concerns.However, this is more often caused by unmanageable or unplanned debt, as opposed to good debt that we feel comfortable with.


There’s also shame attached to being in debt, even if it can help our financial standing.

‘The fear of debt can develop from multiple sources,’ said Dr Joe Gladstone, asistant professor of consumer behaviour at the UCL School of Management.

‘Research in economics and psychology shows that most people are loss-averse; they are more concerned with avoiding losses (which debt payments could reasonably be considered) than acquiring gains.

‘Similarly, most people are risk-averse; they dislike uncertain outcomes and debts are perceived as risky. But there are also idiosyncratic influences on a persons aversion to debt, including childhood experiences and how anxious a person is in general.

‘Not everyone will worry about debt to the same extent.’

Unfortunately, due to the nature of good debt, it can be difficult for some people to build up a positive borrowing history.

‘It seems inherently wrong that you have to take on debt simply to be able to qualify for additional debt at a later date,’ says Freddy Kelly, the founder of Credit Kudos, an alternative credit scoring platform that helps people with thin or non-existent credit files access affordable credit.

‘This also creates problems for people who aren’t able to build up this historical information – perhaps because they’ve lived abroad or simply don’t want to risk getting a credit card.

‘These people can find themselves locked out of accessing credit they could afford, simply because of how the traditional credit bureaus assess someone’s creditworthiness.’

If you’re able to get good debt, it could help you in the future, but it’s more important that you stay on top of your finances in general.


For those who are already in bad debt, there are ways to improve your credit score so that, eventually, you can swap it over to good debt.

Debt Month This article is part of a month-long focus in November all about debt. Scary word, we know, but we're hoping if we tackle this head on we'll be able to reduce the shame around money struggles and help everyone improve their understanding of their finances. Throughout November we'll be publishing first-person accounts of debt, features, advice, and explainers. You can read everything from the month on the Debt Month tag. If you have a story to share, a topic you want us to cover, or a question that needs answering, get in touch at MetroLifestyleTeam@Metro.co.uk.

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