Good Debt Vs. Bad Debt
What’s The Difference?
This is a relatively new concept but a fairly simple one, once you get the hang of it. Let’s start with some very simple definitions:
Good Debt: debt that is putting money INTO your pockets.
Bad Debt: debt that is taking money OUT of your pockets.
Sounds simple, I know. But let me assure you that peoples attachment to what they are taught have them cling tenaciously to other definitions. So allow me to clarify. The concept of “bad debt” doesn’t mean you’re doing anything wrong, or that you’ve failed in some way. ALL it means is that it is debt that does provide you a monetary benefit from your having incurred it.
Some people will argue till the ends of the earth that their house is Good Debt. Again, the concept is not that having a house is bad, on the contrary. But the debt from that house is not earning you any money except for its appreciation. And the mortgage you pay and expenses are simply money leaving your checking account, not adding to it.
How then, do we find Good Debt? Well what sorts of debt could we incur that we could actually make money on? In this scenario, let’s look at real estate. You could easily find a place (single family home, condo for sale cebu, commercial space, etc) that you could lease out at a rental amount that would cover your mortgage and other expenses and have money left over at the end of the day. This is good debt.
Inside the distinction of good debt, there are also several ways to have that income as you will discover. With our real estate example, there is the income from rent (the lease you and your tenant agree upon via contract), there is the interest on your mortgage(s) that is tax deductible at tax time, there is the actual appreciation of the value of the property and there is the principle of depreciation which is also a tax-time advantage. That last principle says that your real estate actually depreciates its value over a specific amount of time. Also if you do any upgrades and/or repairs these are tax deductible as well.
I hope you are able to see at least some of the differences between Good Debt and Bad Debt. Now the concept in building wealth is to reduce Bad Debt and increase your Good Debt. There are an abundance of books and other reading materials and teachers and trainers available to you. Now you must choose what is comfortable for you and what your long-term goals are. Once that is established, find someone who is already successful at what you wish to do and follow them. There is no need to re-invent the wheel so you can buy 38 Park Avenue Cebu with confidence