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good versus bad debt

“There’s no such thing as good or bad debt,” says Joyce Wan, Windmill Microlending Client Success Coach. Wan says, when it comes to borrowing money, it all depends. “A ‘good’ debt for one person can turn out to be a ‘bad’ debt for another,” she adds.

Through her coaching sessions with clients, Wan, an immigrant herself, assesses their plans and needs, and together with the client, devises a career success action plan. Windmill coaches and clients discuss career, employment, mentorship and anything in between – from how clients are feeling and trends in the local labour market to how borrowing money works in Canada.

Wan has observed that when it comes to knowledge of credit and debt, the knowledge held by newcomers varies dramatically. “Because newcomers arrive from different countries and have diverse cultural backgrounds, they view debts differently,” Wan says. “When they arrive in Canada, they often become aware of credit cards and other newcomer packages and information offered by financial institutions. The majority of newcomers have credit cards and car loans by the time they apply for a Windmill loan. But for some of them, ours is their first-ever loan,” she adds.

Wan believes that perceptions around debt, held by new Canadians and others, are sometimes too simplistic. For example, they don’t reflect the unique realities of each individual’s financial situation. 

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‘Good’ versus ‘Bad’ Debt

“There is a tendency to categorize debts into ‘good’ vs. ‘bad’. ‘Good’ debt is sometimes seen as a mortgage for a home that can help to build wealth, or a loan that can help an individual get back to their chosen professional field, and increase income over time, like the ones we offer,” she says. “Credit cards with high balances and interest rates, used for travel or expensive goods are sometimes seen as ‘bad’. But whether it is good or bad, it remains a debt that goes hand-in-hand with accountability and responsibility. Whoever takes it on must ensure repayment in full,” adds Wan.

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Factors to Consider when Borrowing Money

Wan has observed that many newcomers don’t have experience with monthly budgeting when they first arrive in Canada. But, budgeting is a critical first step to managing debt effectively. “It is easy to overspend and rely on credit cards or personal loans if you do not track monthly expenses. It is only by budgeting that newcomers will see if they are in surplus to invest and save, or in deficit, to review expenses, or seek a job with a better income,” says Wan.

She advises immigrants and refugees to tread carefully before borrowing funds and to consider several factors. These include:

  • The types of loans available and which is most appropriate for them.
  • The interest rate, terms and conditions of repayments.
  • Budgeting and capacity to repay the debt on top of existing obligations.

Wan advises newcomers to manage debt carefully and be aware that mismanaging it can have an impact on future borrowing. Of note, clients often come to Windmill with little to no credit history in Canada and, despite this, can still be eligible for an affordable loan.

Wan recommends visiting the Government of Canada’s Financial Consumer Agency website for more information and resources on debt, borrowing and credit within the Canadian financial system.

To find out if you are eligible for a low-interest Windmill loan to continue or restart your career in Canada, take our two-minute eligibility quiz