Skip to main content

Smart Path

How Canada Life is supporting you during COVID-19. Learn moreOpens a new website in a new window - Opens in a new window

IMPORTANT NOTICE: As of Jan. 1, 2020, The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company became one company – The Canada Life Assurance Company. Learn moreOpens a new website in a new window - Opens in a new window

Your web browser is out-of-date. For the best experience, please update to a modern browser like Chrome, Edge, Safari or Mozilla Firefox.

Good debt, bad debt

Share on

 

No matter how savvy we get about staying out of debt, sometimes credit and loans are unavoidable. Can you imagine buying a house without a mortgage? The key is to be able to identify when it makes financial sense to use credit – that’s the difference between good and bad debt.

Good debt is credit or a loan used to gain back some kind of return on investment. Some examples include:

  • Student loans used to cover education
  • Loans or credit used towards owning a small business
  • Real estate
  • Investing

Bad debt includes purchases paid for using loans or credit that won’t go up in value or offer a return on investment. Maxing out your credit card for a vacation may be considered bad debt.

Tips for avoiding bad debt:

  • Avoid paying in installments. It may be tempting to use a retailer’s financing plan to buy that new bedroom set. But if you can’t afford to buy it up front, paying in installments may mean paying high interest rates.
  • Don’t use storefront cheque-cashing services or advance tax-refund offers. The percentage fee most charge may seem small, but it adds up over time.
  • Ask your credit card provider if you can get a lower interest rate.

Share on

Next lesson: Your emergency cash cushions

Read