Tag Archive for: #good debt

Not All Debt Is Bad!

When you hear the word “debt,” do you feel a little nervous? You’re not alone. Many people think of it as something to avoid at all costs. But here’s the truth: not all debt is bad!

Good debt can be a powerful tool. It helps you build wealth, create opportunities, and achieve goals. For example, imagine buying a rental property with a loan. That loan works for you by creating cash flow each month. Another example? Taking out a loan to fix up a property and sell it for a profit.

Bad debt, on the other hand, drains your wallet. High-interest credit cards or loans for things that lose value over time can weigh you down.

The key is knowing the difference. When debt helps you grow or make money, it’s a stepping stone. When it holds you back, it’s a hurdle.

It isn’t one-size-fits-all. It’s about using it wisely and keeping your long-term goals in mind. Stay tuned, and we’ll dive into how to make debt work for you—so you can reach your dreams without being weighed down!

How to Spot Good Debt

Good debt helps you earn more or grow your wealth. Think of it as an investment in your future. Here are some examples:

  • Student loans: They can lead to higher-paying careers if used wisely.
  • Real estate loans: Buying a rental property can create income every month, covering the loan and then some.
  • Business loans: Starting or expanding a business could boost your income over time.

The key is to look at the big picture. Will this debt pay off in the future? If yes, it might be worth it!

How to Avoid Bad Debt

Bad debt usually comes with high interest rates and no lasting benefit. It’s like throwing money into a bottomless pit. Here’s what to avoid:

  • Credit card balances: Using credit for everyday expenses you can’t afford builds up quickly.
  • Car loans for luxury vehicles: Cars lose value over time, making the debt a long-term burden.
  • Personal loans for wants, not needs: Borrowing for things that don’t build wealth can leave you stuck.

The trick? Only borrow when it helps you move forward, not backward.

Debt doesn’t have to be scary. With the right mindset and tools, it can open doors you never imagined. 

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What Is Bad Debt Versus Good Debt?

What Is Bad Debt Versus Good Debt?

What Is Bad Versus Good Debt?

So, what is bad and good debt?

Well, before we jump into that, did you know there are two types? Because most of us were raised to believe ALL debt was bad.

But no. That’s not true. At all!

In fact, good debt is necessary to build your credit score. Without it, you can’t boost your FICO score and obtain low-rate loans for things like fix and flips, rentals, and other value-add properties.

So, now that you know there is such a thing a good debt, let’s look at the difference between the good kind and the bad kind…

As you can see in the image above, bad debt is essentially any kind of consumer good. It’s something that doesn’t create cash flow. So, think about your vacations, cars, TVs, clothing, etc. They’re fun to have but not helpful to your bank account.

Good debt, on the other hand, pays for itself AND generates a profit. The best example is a real estate property. If done right, you’ll gain equity on most of the properties you purchase. It can be instant equity (aka, a fix and flip) or long-term equity (your personal home that has a 15-30 year mortgage). But, as long as you pay your monthly mortgage, owning a home tends to be a great investment.

So, the next time you hear the word “debt,” don’t cringe. Instead, ask yourself, “Is this the kind I want?”

If it’s bad (because nobody can get through life without having some bad), stop and ask yourself this: “Is this something I need?” Or, more importantly, “How quickly can I remove this from my credit history?” In other words, how can you pay for it without using a credit card? Because as long as you pay your bills and maintain a healthy credit usage (under 30%), even bad debt can be okay.

It’s all about balance and healthy finances!

Have questions? No problem. Our team is always here to chat.

Happy investing!

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