Debt is an important concept. When used prudently and for the RIGHT reason it can be a powerful tool to help you preserve and grow your wealth. When used for the wrong reasons (I’m looking at you credit cards used for silly expenses that you can’t pay off every month) it can sent you into a debt spiral that you won’t be able to get yourself out of.
Let’s talk about some BAD kinds of debt. Pay day loans are almost always a bad idea. These are the loans where you can get an advance on your paycheck for a couple weeks. These loans come with outrageous interest rates, and create a cycle because you probably will need ANOTHER payday loan to pay off the first loan. All of those fees and interest keep piling up on themselves. Credit cards are one of my favorite tools for every day expenses, but if you can’t pay the balance off in full every month, they come with interest rates as high as 20-30% and that interest adds up!
Now let’s talk about GOOD debt. When used properly, mortgages can help you invest in a home for yourself, or for a property that you can rent out (hopefully for a profit) and have an asset that should hopefully grow over time. Car loans can be good or bad. If you need a car to get to work, and that’s the only way to get, you need that car loan. If you are buying a new car and can borrow money at 0-1% and can earn 4-5% in a FDIC insured Bank savings account, that’s some good math! BUT if you’re using 6-7 year loans at 6-10% to get a new car every 3 years. That’s NOT good math.
When used for the right reasons, debt can be your friend. When used for the wrong reasons, debt can create some really bad habits.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.