When you see the word debt, undoubtedly the first thing that pops into your mind is a credit car bill or a car payment. For many, debt means a mortgage or other high dollar expenditures. However, there are two main forms of debt and they are very different from one another. You cannot paint them with the same brush since they are fundamentally different at their various cores. In order to better understand debt, let’s take a look at these types and discover how debt can actually be good for you, when managed properly.
Bad Debt – This is the kind of debt that most of us are familiar with. You start out in life with a boat load of student loans, and most likely a few credit cars. Pretty soon you’ve got a car payment and later a house payment. You’ve got all of these expenditures weighing on you and they add up very quickly. The interest payments make it hard to get ahead and before you know it, you may be in well over your head. At this point, most people strive to get out of debt anyway possible and start researching opportunities to consolidate their debts to make it easier to pay them all of.
This is referred to as bad debt because it works against you. The only exception would be a mortgage, since this is actually something that is going towards building your future. Bad debt is the kind of debt that results from overspending on things you really don’t need – things that can never provide you with any sort of return. Spend too much on these frivolous items and you’ve got quite a problem on your hands.
Good Debt – This is a completely kind of debt. Good debt is commonly referred to as leverage. This refers to the fact that you are going into debt in order to make more money for yourself in the future. Case in point, let’s say that you have the opportunity to invest in a new business. This business is forecast to produce $250k a year for the next ten years. It will cost you $25k to get in to the opportunity, but you don’t have that kind of cash just lying around.
You can get a loan for that $25k and turn it around to the tune of 10 times your original investment. This is good debt – the kind of debt that works for you. By using your debt to leverage multiple streams of income, you can have even greater results. The key is figuring out the kind of returns you want to get and how far you’re willing to leverage that debt.
In the right hands and with the right techniques, debt is a very powerful tool that can help you make more money, not less. When handled incorrectly, debt is nothing more than an albatross that will bog you down financially. Good debt is something that will free you from financial worries.
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Originally posted 2008-11-16 05:04:38. Republished by Blog Post Promoter
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22 comments ↓
Hey ,your explanation about the Debt’s is very good…..and good debt’s and bad debt’s are not close to each other…there are very much different.
[...] not all debt is bad. When you leverage your debt with your future in mind, this is the easiest way to make money and [...]
[...] you secure your financial future. While no one is arguing that improperly used debt is a bad thing, good debt is possible. Commonly, good debt is synonymous with leveraged debt. This refers to the process of using debt in [...]
[...] it is important to understand how debt works. There is bad debt – which most of us are in, and then there is good debt. A simple formula to tell the difference [...]
[...] Good debt is money that you spend on something that will give you some sort of return. For example, your student loans are good debt, since they were used to further your education and help you earn a larger salary. A car loan straddles the fence, but it is a necessity, so for the sake of argument, we’ll put this in the good debt column. A home loan is also a good debt as long as you do not overbuy. [...]
[...] you don’t have the time to get a second job, you may want to consider a technique known as debt leveraging. This involves taking out a loan and making an investment. Whether it is in an interest bearing [...]
[...] key is understanding the basic concept of good versus bad debt. Good debt is an investment that will return you with an income, while bad debt is typically [...]
[...] 2. Do you understand the difference between good debt and bad debt? [...]
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[...] it is important to understand how debt works. There is bad debt – which most of us are in, and then there is good debt. A simple formula to tell the difference [...]
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[...] Credit Debt Loan listed an article on The Difference Between Good Debt and Bad Debt. This is shaky ground as far as I am concerned, but the article is well written and makes a couple [...]
[...] Credit Debt Loan listed an article on The Difference Between Good Debt and Bad Debt. This is shaky ground as far as I am concerned, but the article is well written and makes a couple [...]
[...] Credit Debt Loan listed an article on The Difference Between Good Debt and Bad Debt. This is shaky ground as far as I am concerned, but the article is well written and makes a couple [...]
[...] Credit Debt Loan listed an article on The Difference Between Good Debt and Bad Debt. This is shaky ground as far as I am concerned, but the article is well written and makes a couple [...]
[...] Good debt is money that you spend on something that will give you some sort of return. For example, your student loans are good debt, since they were used to further your education and help you earn a larger salary. A car loan straddles the fence, but it is a necessity, so for the sake of argument, we’ll put this in the good debt column. A home loan is also a good debt as long as you do not overbuy. [...]
[...] not all debt is bad. When you leverage your debt with your future in mind, this is the easiest way to make money and [...]
[...] The Difference Between Good Debt and Bad Debt posted at Rich Leverage. [...]
[...] and they can work for you on a small or large level as well. Start looking at debt in two forms, good and bad, and use the control of “what will this investment return” as a means to figure out [...]
[...] the case of the individual, buying a house is debt leveraging. The hope is that increasing land values and property values will outweigh the total cost of the [...]
Unfortunately, many people end up racking up bad debt more often than not.
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