Monday 27 November 2017

Good Debt VS Bad Debt


Let me clarify something first,
I am not an accountant,
so this article is just my personal opinion,
it doesn't mean that everyone need to agree with me.
D
E
B
T

 DEBT.

 How are you feeling whenever you heard the word "DEBT"?

 Scare? Hate? Feeling bad until want to vomit?

 Actually a lot of people dislike DEBT,
because they will headache when thinking about repaying the installment of the DEBT,
so they decided to stay as far away as they can.

 However,
most of the things in our lives are related with DEBT.
We need housing loan to buy a house,
we need car loan to buy a car,
we need education loan so that we can graduate from university or college,
even the credit card that we always bringing with us,
is also a DEBT.

 Many people hate DEBT,
so they trying to stay away from it even a small credit card,
this caused them to have a blank record of credit rating.
It will be hard for the bank to approve their housing loan or car loan,
because the bank can't find out about their credit rating,
in turns it become hard for them to buy the house or car they like.

 In order to have a better credit rating so that the bank will be easier to approve our loan applications,
is better to have some DEBT and make sure you clear the installment every month.

 So instead of avoiding DEBT,
why can't we try to see the other side of the coin,
change our mind and accept DEBT?

 Of course,
I do not suggest simply borrowing money.
This is because there are two types of DEBT,
GOOD DEBT and BAD DEBT.

 GOOD DEBT,
are the DEBT that can help us to achieve our financial goals faster.

 For example,
we borrow money from the bank to buy house for investment.
After using the rental to repay the installment and there is still some money left,
which means POSITIVE CASHFLOW,
then this housing loan is actually a GOOD DEBT.

 One more example.
A company need a large capital for expansion,
but the company does not has enough cash,
so borrow some money from the bank.
After the expansion is done,
the company earned a lot of money,
more than enough to repay the DEBT,
then it is a GOOD DEBT too.

 At the other way round,
BAD DEBT will not only stop us from achieving our financial goals,
causing financial lagging,
and even worse.... bankrupt.

 Let me give an example that everyone knows,
borrow money to buy a car.

 The value of the car will drops as soon as you started driving it.
Borrowing money to buy something that the value keep dropping is an example of BAD DEBT.

 Please be clear that I didn't say everyone shouldn't buy a car.
Just.....
we need to know that car loan is a BAD DEBT,
so is better to review our income and expenses,
before actually buying a car.
Especially nowadays many youngsters declared bankruptcy because unable to pay back the car loan.

 After learning more about GOOD DEBT and BAD DEBT,
then is time to start thinking....
how to use GOOD DEBT to help us achieve our financial goals.

 This topic is actually a very common topic that everyone knows,
but the question is.....
how many of us are actually using GOOD DEBT to do what we know??

 The actual reason why I purposely write a DEBT related article,
is because of my future articles.

 Thanks for reading.

I don't provide any buying/selling suggestion above,
please make your own investment decision and be responsible with it.
Posted by at
Labels: ,

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)