Debt can be awesome! Did you know there are two types of debt?
When used correctly “ good debt “ allows you to buy things you could not otherwise afford, using other peoples money, and increasing your net worth in the process. Some examples of good debt are:
- Mortgage - Borrowing money to purchase a property that will appreciate in value, while your tenants rent will cover all of the expenses.
- Education - Borrowing money to use for education is a way to invest in yourself, if you follow through and use the education to make money, this is considered good debt.
- Starting a business - If you have a passion and ambition, starting your own business can be rewarding and very lucrative.
“ Bad debt “ is the crippling and debilitating type of debt that average people associate with the word debt. Some examples of bad debt are:
- Car Loans - The moment you drive off the lot the car is already worth less than you paid for it. Going into debt to buy a depreciating asset is not the most intelligent decision a person should consider. If you must have a car, find a cheap one and pay cash, or look for a loan with very little to no interest.
- Credit Cards - Building credit is great, but in the wrong hands a person can quickly get themselves into bad debt by using credit to buy things like food and clothing.
- Student Loans - According to a 2017 poll by BDO Canada 77% of Canadian graduates under 40 have some regrets about the money they spent on schooling. Before committing thousands to a student loan, it’s important to note that the average Canadian will hold up to 15 different jobs throughout their lifetime.
Key Takeaways:
- " it takes money to make money " it’s okay to go into debt, if it’s going to yield you a higher return.
- Avoid bad debt, and learn how to leverage good debt.
- Assets are things that put money in your pocket.
- Liabilities are things that take money out of your pocket.
- Use other peoples money to build your own net worth.