Here’s a simple MBA lesson: borrow money to buy things that go up in value. Borrow money if it improves your productivity and makes you more money. Leverage multiplies the power of your business because with leverage, every dollar you make in profit is multiplied.
Here are some of the great points:
- The general point of the article is that any time you go into debt for something that decreases in value, you’re making a bad move.
- Virtually anything you put on a credit card is bad debt. The stuff you buy with a credit card is either consumed (like food, for example) or decreases rapidly in value after you buy it (like a DVD, for example).
- Student loan debt is (usually) good debt. Provided that you finish a degree program, student loans are usually good debts because the value of the degree you bought with that loan is much more than the face value of the loan.
- A car loan is bad debt. An automobile decreases in value with every mile you drive it – it will never reclaim the original price that you paid for it.
- Mortgage debt is (sometimes) good debt. A home will usually hold its value over time and perhaps increase a bit, but a home mortgage still isn’t always a good debt if you’re paying more in interest than you would be paying in rent living elsewhere.
- Financing any consumer purchase is bad debt. Furniture? A television? A riding lawn mower? All of these things are often bought with a financing plan – and all of them are bad things to go into debt for because they drop steeply in value as soon as you buy them.
- Thanks Trent for these fantastic points and I couldn’t agree more. People often get confused when it comes to the concept of borrowing, they hear people saying borrowing is great, it helps you get wealthy while others tell them to avoid borrowing and debt like the plague.
These points above explains what kind of debt is good, and what is bad. Good luck, and don’t be afraid to go into debt, just make sure you do you homework first, and make sure whatever your getting is a good investment.
The Complete Guide to Personal Finance: For Teenagers
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