How To Tell If Ready To Feed Formula Is Spoiled Good Debt vs Bad Debt

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Good Debt vs Bad Debt

A word debt is often associated with an idea borrowing. With this connection in mind, let’s discuss the differences.

Today we hear “Debt is bad. Get out of debt. Pay off your mortgage. No debt is the way to go. Living debt free is essential to financial freedom.” I think people have really freaked themselves out about this topic.

But remember back in the day when we heard that fat and cholesterol were bad? In the grocery store, you can find people looking at labels to make sure they are not in the food you are buying. Then when we got the information that there is good fat and good cholesterol, people’s heads were spinning.

The same goes for debt. There are two types of it: good debt and bad debt. Plain and simple, when people use debt to buy assets (things that bring you income), that’s a good thing. On the other hand, it is bad when people use debt to buy bonds and liabilities. Can you guess what the rich do?

Good debt is used for production, while bad debt is used for consumption.

Good

It’s good if it can help increase your productivity and wealth. When you go into debt to buy assets like real estate and use cash flow, you use it to your advantage. The real estate lessee actually pays for the obligation.

At the time this article was published, my husband and I were enrolled in Bob Proctor’s coaching program. It has been our most expensive coaching program to date. While we could use the money in our emergency fund, we decided it was best to keep our reserves in tact. Our next option was to use some of the cash value of our life insurance policies. But we felt that if an investment opportunity arose, it would be easier to borrow from our policies.

We ended up choosing to pay it off with our American Express Blue Cash credit card. While this may annoy some of you, it made more sense for us to use someone else’s money. This money is used to invest in us, where the potential returns are unlimited.

Rest assured, we have a strategy to pay it back.

Bad

It’s bad if you use it for consumption. (Bad is a relative term in the sense that it’s not used to increase your wealth.) Some use credit cards to finance lavish lifestyles and get themselves deeper and deeper in the hole.

I recently read that the average household with a credit card owes almost $10,000 on their cards. If these balances are the result of destructive consumption, these households are in trouble.

Credit card companies like college students. They charge a lot and usually pay the minimum because they have virtually no income to offset it. But I’m sure the students will love them too. They usually offer free stuff.

Ugly

Let’s look at the example of an average household with nearly $10,000 in credit card debt.

Amount – $10,000

Payment – $200 per month

Term – 78 months

Total Interest – $5,790.32

Total – $15,790.32

With monthly payments of $200, it will take 6.5 years to pay off that $10,000. To make matters worse, the interest paid back is more than half of the principal amount. Now how ugly is that?

The truth

Honestly, debt is not what everyone thinks it is. According to accounting, debt is when your liabilities exceed your assets. When your assets exceed your liabilities, it’s called equity.

Popular financial experts like Suze Orman and Dave Ramsey say to eliminate all debt. They say avoid it. And I agree because of its true meaning: Liabilities > Assets = Debt. But that’s not the definition they use. Their view is that all borrowing is bad. But as we discussed above, borrowing to produce more is good.

The formula for putting debt (or borrowing) on ​​your side is:

Increase your liabilities to increase your assets to increase your wealth.

Debt can hurt you if used improperly and irresponsibly. But we use debt differently. We use it to increase our productivity and wealth. Use it only to your advantage.

If you can accept that good fats and good cholesterol exist, then consider that there is good debt. Do you have debt that is weighing you down or debt that is helping you get financially fit?

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