Is There Such Thing As a Good Debt?

10:25:00 AM Rhea Mocorro 0 Comments

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When we talk about debt, we always thought of it as a bad thing. We often cringe on the idea of receiving our next credit card bill or perhaps going to the bank and pay it. Worst, we often hesitate to pay it and it could lead to more debts on our end. It is a never ending cycle as many would say. But oftentimes, life would push us to the corner and there’s no going out except to incur debt.

Good thing there is a good debt. Perhaps you might raise an eyebrow or even two of your eyebrows and exclaim, is this even possible? It sounds so ironic isn’t it? Let me explain.

Borrowing is pretty common. And sometimes it makes sense to borrow. However most of the time, if not a lot of time it doesn’t. In this case we would be focusing on the good debt over the bad debt. So that in the future, we would be wiser in our debt choices and maximize the potential of such money. Do take note that debt is not always a bad thing.

Good debts include anything that you need however you cannot afford to pay for now. The reason being why such is a need is that you may end up broke or you may wipe out your savings if you purchase it. In order to make yourself liquid, take those loans that you can afford on a monthly payment. Ironic to bad debts, these are debts that you incur in order to satisfy your wants and the things you cannot afford. The worst of this form would be our credit cards.

Here are a few examples of good debts.

Education

Needless to say, education is pricey. This holds true if you send your kids to private schools and even those who are in college. Since most parents would want to give the best education to their kids, such issue on money arises. That is why parents tend to borrow money from other sources in order to satisfy the tuition and other related education bills. That is a good investment to begin with. And incurring debt for someone’s education is definitely not a bad thing.

Business

Are you planning to build your very own business? Perhaps are you eyeing to put up one the soonest but don’t have the means to start? If that is the case, then get a loan. That is not a bad thing after all since you are using the money to build up a business. When you have already established that, you can use your income or revenues to pay off that debt. Business is not a dead end investment after all most especially if it is generating cash and income.

Investment

If you decide to take a loan and put it up in the stock market, mutual funds and related investments, then that is another instance of a good debt. The borrowed money after all would incur interests and it will grow. Thus you would be able to pay the money from the investment interest. And in the end, you will be gaining more in the process. However, you need to be very smart in here as to where to invest. After all there are still risks.

See, these affirm that debts are not that bad. If you only incur such because of a need or you would use it as an investment be it in a business or stocks, incurring one is good. It would be best that when you loan next time, assess if it will be used on the things you need rather than on your wants. Think also on ways that you can be able to grow the borrowed money. And always gear towards good debts rather than the bad ones.






P.S. To those doing the 52 Week Money Challenge and 52 Week Money Challenge Version 2, it is Week 15 already! Did you deposit the next amount yet?

P.P.S Want to know more about investing, savings, stock market and more, check out my reference here. You can download free ebooks and resources too.

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