Good loan vs. bad loan

Whāinga ako: Lesson Goals

We are learning about sources of finance for different situations and the benefits and risks involved.

Kupu matua - Keywords

debt, certification, finance

Mahi - Work

Good Loan _ Bad Loan.pdf

Task : What do you already know?

Teacher led online Quizizz quiz or do the paper version as a class.

The answers are here.

Is it worth having debt?

Debt basically means that you owe money to someone. If you do not make repayments the amount can keep going up and up which is how some people get stuck. People don't like the idea of having to lose money from their income to paying things off. However there is Good Debt and Bad Debt.

Good Debt

Good debt can include things like

Student loans to get a new degree or certification that improves your job prospects
A mortgage on a house
Refinancing a loan on your house for home improvements

VS

Bad Debt

Bad debt usually involves situations that are hard to recover from.

Loans which you cannot afford to repay or that have a high interest rate or harsh missed payment penalties
e.g. Afterpay
When the life of the loan is longer than the life of the product you are buying
e.g. 3 year loan to pay off a cellphone which may not last that long

It comes down to wants or needs.

Wants. If you are going into debt because you want something to feel cool, it may not be a good idea!
Needs. If you are going into debt for something that will later earn you money or save you money then it is most likely a good idea.

A big question to ask yourself is: Do I need this thing now or should I wait until I have saved?

Let's learn about different situations you could find yourself in in years to come.