The Difference of
Good Debt Versus Bad Debt
Good debt is a form of leverage. Most people do not know the difference between good and bad debt. Most people think all debt is bad, and spend a great deal of time trying to eliminate all of their debts. They do not realize that good forms of debt exists.
Bad debt is debt that makes you poor. Bad debts are either expenses or liabilities. Bad debt is, in every case we could think of, consumer debt.
Even wealthy people have debt. The difference is, it is some form of assets. These are usually expenses associated with a successfully managed business, passive income or real estate investments.
To recap…
Examples of Good Debt and Bad Debt…
Look at the examples below, They will help you see the concept. Try to determine which debts are good and which debts are bad...
- You owe $700,000 on mortgage to an apartment complex that brings you $4000 profit every month after paying mortgage.
- You take out a home equity loan to start a business or purchase rental property
- You just got your promotion so you buy a motor cycle with a $300/mo payment financed threw the dealership
- You take out a home equity loan to remodel your home
- You take out a loan to purchase a new vehicle to further your snow plowing business
- You buy $200 worth of clothing at the mall on your credit card.
- You decide to start a home business and you borrow money from several relatives putting the agreement into writing.
Many of the above examples could be either good or bad debt, depending on the knowledge and experience of the person responsible for the debt.
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