Say you had the opportunity to take out a loan at a reasonable interest rate to buy a house. In our current housing market, this could potentially save you tens or even hundreds of thousands of pounds in rent over a lifetime. But you decided not to, because £230,000 (the average UK house price at the time of writing) is a lot of money.
Would that be a sensible economic decision? No, it clearly wouldn’t. Neither would it be sensible, if you were a small business owner, let’s say a baker, for you to pass up the opportunity to borrow to invest in a game-changing new oven which made your cakes twice as delicious and would pay for itself many times over during the course of its life-time. Bad decision.
You don’t need to be an economist to know the difference between good and bad debt. Good debt is a sensible investment that will make us better off in the long-term and won’t harm us in the short-term; bad debt is debt that comes with rip-off interest rates and charges, or which we're not sure we'll be able to pay back. This difference is a common sense that we confidently apply to our lives every day. Many people make the sensible economic decision to invest in themselves, their families, their education, their business, and their future wellbeing.
