GOOD DEBT OR BAD DEBT QUIZ (PAGE 49) ANSWERS

A. The holiday. Bad debt! The clue is in the question. If you can’t afford it and don’t need it, don’t go into debt for it! A holiday is a luxury that you can live without for a few months while you save enough money to pay for it a better way.

B. A house. Good debt! Going into debt for some things is unavoidable, and a house is usually one of them. If you need to get a mortgage to buy your own place, find the best deal you can and consider it an investment in your future – though only do it if you can afford the repayments and you won’t be hurting the rest of your finances.

C. A car. Good debt! If you need a car and can’t buy one out of your own pocket, then borrow for one wisely. This isn’t bad debt because having the car (as long as you get a good deal!) will improve your quality of life and enable you to earn money. Yet as you’re borrowing, try and get the cheapest workable car, don’t spend more than you need to, ensure you budget for your repayments, check that the interest rate is cheap, and pay it off as quickly as possible.

D. Party clothes. Bad debt! If you got this one wrong, shame on you! Feeling like you’ve got nothing to wear is no excuse for impulse shopping or buying something you can’t afford. Even worse is putting this crazy purchase on a store card. Store cards have stupidly high interest rates. Remember, they’re the devil’s debt – designed to trap you!