What Is Good Debt?
What is good debt?
Is it necessary to have good to owe the banks?
Borrowing from the bank that is considered good is an investment you make that will grow in value or generate long-term income.
Taking out student loans to pay for a college education is the perfect example.
Like student loans, home mortgages generally have lower interest rates than others, plus that interest is tax deductible.
It’s possible for you to live without borrowing money from the bank or from an individual but it’s not particularly smart to do that.
Few people earn enough money to pay cash for life’s most important purchases: a home, a car or a college education.
The most important consideration when buying on credit or taking out a loan is whether the credit incurred is a good credit.
What is good debt?
Taking out a loan is an example of good credit, especially if the vehicle is used to do business.
There are many ways people go into debt and justify it by saying it’s good credit.
I only consider credit ‘good’ if what i’m getting into debt for will eventually save me money or help me to make more money.
For example, borrowing money to buy a brand new laptop that you’ll use to start your business is an example of a good credit.
Borrowing from the bank to buy a piece of real estate is an example of good credit. (1)
Many first generation immigrant millionaires started their businesses by going into debt.
Most rich men have a bit of debt because they can write it off during tax. But that’s beyond the scope of this post.
So, before you go into debt, ask yourself if it is a good or bad. If it’s bad, ask yourself if you really need that thing and try to postpone it or forget it altogether.
But if it’s good, by all means go ahead.
What have you been considering buying and are not sure if it’s a good debt or bad debt? Ask in the comment section below and I’ll let you know if it’s good or bad debt.