What is a good debt and a bad debt? /economy //samueldc

One of the main priorities of the people should be to have a solid financial education. This allows people to intelligently manage their finances, taking full advantage of them and, in the best case, make a real economic fortune; that's why I want to talk in this post about good debt and bad debt. It is a concept of perhaps little-known debt and that is, in any case, the main reason why many people tend to be constantly badly indebted and therefore financially bankrupt.

What is a bad debt?

A bad debt is a debt that is contracted on a whim, by impulse, by lack of discipline and which in turn produces a high percentage of interest for the bank and in many cases is a debt that keeps you indebted in the long term. An example would be to ask for a bank loan to go on vacation for a week or fifteen days, perhaps on a Cruise, and then you are committed to the bank to pay monthly a fee with interest for three long years, just for the pleasure of a vacation. costly that you do not remember a month.

Before taking on a debt, ask yourself this question first: Will this debt bring me an economic benefit? If the answer is no, then you have to think it over before taking it because it is a bad debt.

You will then be forced to sacrifice many basic needs to be able to cancel the bank transfer for a fairly long time for a vacation or just a week or fifteen days. Another example would be to buy clothes or shoes with a credit card, alcoholic beverages, food, buy a television or unnecessary luxuries that make you acquire a debt with the bank without what you acquired will produce any economic benefit in return but will oblige you to cancel a monthly payment with high interest. These are just some examples of bad debt acquired on a whim, by impulse and lack of discipline that could very well have been acquired or purchased by raising money without having to borrow.

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A good debt is that debt that allows you to obtain an asset that generates income and that is revalued over time and in addition to this that you do not pay it.

An example of good debt would be that you acquire a mortgage with the bank to build commercial premises that you then rent and you get an income for it and that income allows you to cancel the mortgage to the bank. In this case, the debt is canceled by the tenants with the monthly rent they pay you and the property is acquiring more value over time.

To be indebted to acquire land, farms or build real estate such as buildings, homes, commercial premises, hotels, buy works of art, antiques or simply buy a vehicle to put it to work as a taxi is also a good debt.

Maybe you will say: "But I've heard that it's not good to be in debt" ...

People have the belief that it is not good to get into debt but that is a mistake, of course, as long as it is a good debt. With a solid financial education anyone can borrow and take advantage of the debt, from any point of view acquire a good debt is an intelligent decision because with the bank's money you buy an asset that produces profits and you do not pay for it, but that finally the asset that you bought with the bank's money is yours, is your property.

You could say, "but if I have money in the bank, I prefer to buy the asset with my money and I do not borrow from the bank." At first glance, it seems a good option but it is not like that. If you buy the asset with your money you should not owe anything to the bank but you may run out of money and maybe without the possibility of acquiring another asset with your own money because if you make a mortgage with the bank to buy the asset, you would have your money available in it. your bank account, which would serve you, for example, to provide a percentage of the credit amount according to the bank's policy and access a new mortgage to acquire another real estate.

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In summary...

Whenever it is a good debt there is nothing wrong with getting into debt with the bank or any other financial institution. The bad thing is getting carried away by the whim, by the impulse, by the lack of discipline to save and buy what does not bring you any economic benefit and get into debt with the bank to satisfy that bad action.

The great millionaires never acquire assets with their own money but with money from the bank and the same way of investing that works for them work for everyone, only on a different scale but the principle of good debt is the same for the great millionaires as for medium and small investors.

Thank you for reading...