Good debt is money you borrow to finance investments that creates value; for example, real estate loans, home mortgages and business loans. Good debt allows you to leverage other people's money to create wealth.One of the secrets to become wealthy is to invest as much money as possible in real wealth assets that work for you.



Bad debt is debt used to pay for consumable purchases such as vacations, food, clothes, and gasoline, on which you proceed to pay only the minimum each month rather than paying the card balance in full each month. If you continue to pay only the minimum payment, these debts will pill up and snowballing each month and it will reach to a certain level where your monthly payment not even able to support the minimum payment requirement, you will be have unbearable debts at this time.

The fact is most of us can't avoid some form of borrowing. Unless you are born with rich and generous parents, it's almost impossible to negotiate life without taking out at least a few loans. If you want to attend university, buy a car, purchase a house, or open a business, you are going to go into debt. The challenge is finding ways to make debt work for you instead of against you.

If you are thinking of borrowing money to make any of investment, either in stock, mutual fund, real estate or business, put your deep taught on it first because every investment carry some sort of risk in a certain level. Before deciding how much to borrow and apply for the loan, you should consider first whether the underlying investment is worth buying, what are the potential returns and how long before you see the positive cash flow.

Once you get your loan approved, you will need to start repay for your loan every month. Hence, it is important for you to plan for your loan repayment at the beginning. You should make sure you can support the loan repayment while using the money for investment so that your will not snowballing your debt because of your money is stuck at your investment.

The most toxic debt that drags many of the debtors into serious financial crisis is Credit Card. Many people have no idea how expensive their credit cards are; the 18%-plus interest rates that most credit cards charge you, is really a 30%-plus rate before tax. No matter how much you make, that's an absurd interest rate to pay. Hence, paying off your credit card debts can yield bigger profits than any stock market investment. Eliminate an outstanding credit card balance and you have made an instant double-digit return on your money.

The good debts may turn into bad debts if you do not manage it probably. There may always be times in your lives when you can't pay your debt's repayment each month, but that should be the exception instead of norm. If you have come to situation where you have difficulties to pay your debt, you may be able to move it around in ways that save you money. One way is to swap high-interest debt for lower-interest debt. The bottom line is you should not let your debt issue goes worse, manage it and put in actions to recover it.

In summary

Good debt can help you build wealth and bad debt does just the opposite. It ravages your capital, corrodes your finances and sucks your energy away from productive purposes. Let the debt work for you by accept only good debts and get rid of bad debt while it still manageable.