“Good” Debt & “Bad” Debt

 

 

Debt today is so common, you might say it can’t be avoided. Most people are not in a position to purchase a house or car for cash, while those who can buy such things outright may prefer to finance and keep control of their capital.

The truth is, while most of us see debt as a bad thing, any money borrowed to generate income or increase net worth has some merit in being considered “good debt”.

If the amount borrowed is invested for an overall gain, the debt is a tool. And in some instances the interest paid on certain loans are tax deductible.

Good Debt: borrowing to acquire assets that are likely to increase in value. For instance,

  • Borrowing to invest: Allows one to put more money into your investment in an effort to earn extra returns
  • Business ownership: Many entrepreneurs start their businesses with borrowed funds. For a person with a strong business plan, good entrepreneurial instincts and a desire to succeed, assuming such a loan can be the best investment an individual can make
  • Real estate: Whether a primary residence or revenue property, real estate has proven to be a prudent long-term investment.

Please remember, risk exists even with “good debt”. If you take out a leverage loan and your investment fails, you will find yourself owing the borrowed amount plus interest, regardless. Real estate markets can fall, businesses often fail, and there are no guarantees that an education will result in higher income or stable employment.

With this in mind, insuring your loans to protect your family and estate from unwanted liabilities such as premature death, critical illness, or becoming disabled. We can help you with these types of insurance; contact us!

Bad Debt:

Bad debt is incurred when we purchase assets that will decrease in value. Some examples:

  • Financing a vehicle
  • Purchasing using a Credit Card or a line of credit, knowing that we do not have the money neither will have it anytime soon is undisciplined & unwise. Enough said…!

Remember, the borrower is always “servant” to the lender. Just miss 3 payments and you’ll fully understand what we mean.

Get rid of debt and take control of your financial life. We’re here to help, contact us.

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