Word of the day - Good Debt vs. Bad Debt

Good Debt vs. Bad

“Bad debt takes money out of your pocket. Good debt puts money in your pocket.

Robert Kiyosaki

Understanding Good Debt vs. Bad Debt

Good Debt

Definition: Debt that is used to invest in assets that will appreciate in value or generate future income.

  • Mortgage: Used to purchase a home, which typically appreciates in value over time.

  • Mortgage: Used to purchase a rental property, which typically appreciates in value over time as well as generating a business income.

  • Student Loans: Used to finance education, which can lead to higher earning potential.

  • Business Loans: Used to start or expand a business, with the potential for profit.

Key Characteristics:

  • Lower interest rates

  • Longer repayment terms

  • Invests in assets with long-term value


Bad Debt

Definition: Debt that is used to finance non-essential items or expenses that depreciate in value.

  • Credit Card Debt: Often used for everyday purchases, with high interest rates.

  • Payday Loans: Short-term loans with extremely high interest rates.

  • Car Loans: For vehicle depreciating in value.

Key Characteristics:

  • High interest rates

  • Short repayment terms

  • Invests in assets with no or limited long-term value

Debt can be a valuable tool when used wisely. By understanding the difference between good and bad debt, you can make informed financial decisions and achieve your financial goals.


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