It seems that anywhere you turn these days people are offering credit. Whether it is 48 months interest free on domestic purchases or credit card offers, the money is there for the taking. It is very tempting to accept all credit offers. But should you?

Not all debt is the same.

Money borrowed for furniture, overseas holidays, weddings etc is what is known as lifestyle debt. Lifestyle debt does not help in growing your asset base nor improving your wealth position. Ideally this debt should be kept to a minimum.

Money borrowed for property investment for example, is in a different category. This debt, if managed correctly, can assist the borrower to achieve financial independence sooner.

In deciding how much you should borrow it is wise to minimise lifestyle debt while maximising investment debt.

Lenders will invariably try to put you through their qualifying calculator to let you know what amount you can borrow through them.

Here are some points to keep in mind:

• Make sure that you are comfortable to take on the loan you are offered and the projected repayments;
   
• Remember that interest rates may move up or down during your loan period – it may be wise to fix the rate if you are concerned about the rate risk;
   
• Do not be afraid to take on an investment loan as ‘interest only for the longest period possible (30 years plus). This will make the loan more affordable and help you hold on to the property for a longer period of time – which is what property investment is all about.
   
• Unless you are in a very hot property market – avoid borrowing without a deposit. The costs of mortgage insurance on such loans are quite high.
   
• Do not forget to take into account your eligibility for the FHOG as well as potential tax deductions.