What are three key questions you should ask yourself before taking on any new debt?

Unfair! The question seems to presuppose that debt is bad. Sure, some of it is pretty nasty. But not all debt. Oh, no-sir-eee.

Some debt is actually okay. For example, a mortgage. Know any Gen Xers who bought their first house with savings? Mortgages help you buy what will one day be your biggest asset.

Some debt can even be considered great. If you’re using debt to buy things (property, shares) that should appreciate in value over time, then that’s good for your long-term financial health. Investment debt can be appropriate for people who, like Days of Our Lives, have plenty of sand to run through the hourglass. And that’s most Xers.

So, let’s talk about debt that’s not so good for you.

That’s the debt to buy stuff that falls in value (furniture, clothes, etc) and that doesn’t qualify for a tax deduction. It’s credit cards, stuff bought on “interest-free” deals (that often bites like a bulldog later) and for cars that are wa-a-ay more expensive than you need. Here’s your questions.

1. How bad do I need this? How long would it would take to save for it? If it’s only a few months, save instead.
2. Am I getting the best deal? Are you going to take the finance offered in-store because it was easy? Shop around for other lenders.
3. How quickly can I pay it back? Repaying the debt will impact on your other finances. Something will have to be sacrificed.

Remember delayed gratification. Every dollar you don’t spend on interest now will eventually turn into two dollars to spend later.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and principal adviser with Castellan Financial Consulting.