The Good, the Bad and the FIRE of Credit

June 17, 2024

Not all debt is created equally!!!!

The use of credit in our financial life is inevitable. Contrary to popular belief, credit is not all bad. There is true value in effectively managing your credit. This could be the springboard that changes your financial trajectory for the better.

Types of credit

Credit is debt and debt is a deferred payment or a series of deferred repayments. There are two types of debts: Secured and Unsecured debt.

  1. Secured debt is debt that can be attached to some form of asset as collateral for the debt. Examples of secured debts are home or car loans
  2. Unsecured debt is debt that is not attached to any form of collateral. Unsecured debts are riskier and therefore carry higher interest rates


Usually, when you dont have control over something, it runs wild. At Soul Financial, we view credit as FIRE a powerful element in the right hands, and a deadly weapon that can ruin you if not careful.


How does one borrow responsibly?

Financial institutions make money from providing credit by charging interest . As a credit consumer you should always be mindful of interest. Interest rates are an important consideration because they directly impact your monthly repayments so always keep on close eye on those interest rates


Firstly, and mostly importantly, we do not borrow any credit from loan sharks as they charge interest rates that are unregulated. This can have a disastrous effect on your finances.


Secondly, stay away from high-interest consumer debt from financial institutions! This is the kryptonite to financial independence which can weaken or derail your financial plans. Always try to negotiate your interest rates and get the lowest interest rate you can possibly get because the first interest rate offer is not the final offer. NEGOTIATE!!!!!!


Most consumers do not realize the financial impact of high interest rate credit cards, clothing accounts, unsecured loans and car finance have on their finances. These types of debt  will pull you further and further away from your goals. So, to be a responsible borrower, high interest debt like this cannot exist in your financial ecosystem. Some questions to reflect on when it comes to accessing credit:

  • Can you make the full payment, or the minimum at the end of the month?
  • Is the cost of managing and maintaining your credit within your means?
  • Is the money coming in exceeding the money that is due to your creditors?
  • Are your creditors giving you sleepless nights?
  • Can your assets cover all your liabilities if you had to liquidate?
  • Are you using credit to fund your lifestyle or are you using it to build and increase your net worth?
  • Do you sometimes skip paying some existing creditors?


Always make sure to never carry credit card balances month-to-month. Never finance anything you cant comfortably afford and stay away from any debt thats not low interest or fixed at a low rate.


Good vs Bad Debt

This subject can often evoke many emotions, responses, and definitions. Ones definition of good debt can be anothers definition of bad debt. For this reason, I think its better if we resort to accountings principles.


  1. Good debt is anything that brings in money or increases in value. A car is an asset that depreciates in value over time. Is buying a car still considered good debt? Yes, if over the period of ownership, the car makes you money, is used to take to a job that earns you money minus costs involved in maintaining and disposing of it, then yes, it is good debt.
  2. Bad debt is debt with no assets attached to it. Bad debt is money out its really that simple. Examples of bad debt are credit cards used for maintaining a lavish lifestyle, retail stores accounts, and/or pay-day-loans. The moment credit is used to finance a lifestyle (i.e., buying expensive cars, designer clothes and popping bottles), you are essentially using money that you do not have to live a life that you cannot afford. This will lead to taking out more debt to pay off another. Acquiring bad debt is exercising irresponsible borrowing because you are acquiring debt that you do not need or cannot afford


Credit score

Responsible borrowing directly impacts your credit score. A credit score is a three-digit number generated by the credit bureaus and represents an individuals debt management. The National Council Regulator reported that R1.96 trillion was the total outstanding consumer balance as of the end of June 2020. This could be attributed to factors such as a lack of knowledge on the part of the credit consumer high interest rates and/or lack of responsibility in making timely payments.


Maintaining a good credit record is a consequence of exercising responsible borrowing habits which increases your chances of getting credit from financial institutions.  In addition to the highlights. Heres how to keep a good, high and health number:

  • Managing your accounts well. Paying in full, or minimum every month
  • Not over utilizing your limits. Only use around 30% of your overall limit if you are going to carry a balance
  • Dont apply for additional or unnecessary credit. The high credit application on your profile raises flags
  • Dont ignore negative listings or overdue credit. Make plans to squash defaults or judgements under your name
  • Keeping healthy accounts for longer. Maintaining a good, healthy mix of credit shows you can manage credit effectively



Debt is not always bad and can be used to your advantage, but exercise caution when borrowing money. Credit consumers can ensure that they exercise responsible borrowing by 


  1. Not borrowing more than they need
  2. Understanding the terms of the loan
  3. Negotiating interest rates and 
  4. Ensuring that they can afford the monthly repayments

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