Mastering debt management is a necessary area of making your money work for you. A good place to start on your road to Financial Freedom is learning debt management and to begin you should know the difference between good debt and bad debt. First let me give you some descriptions:
Good Debt: Any debt where the cost of the debt will be exceeded by the profits that are created by whatever it is that you took on the debt to buy is good debt.
Bad Debt: Any debt where the cost of the debt will total more than the gains which will be created by whatever it is that you took on the debt to buy is bad debt.
It’s that simple. When you are looking into taking on debt don’t simply be mesmerized by whatever it is that caught your eye. Debt management 債務舒緩 mandates that you have to run the numbers. Yes, you can finance that car and drive it off the lot right now, but is it worth it to pay $40, 000 for a $19, 000 car? Even if you have to use your last $5, 000 as a downpayment? If your answer is yes then there is no help for you. You are incompetent at debt management. Stop reading now. For anybody with the common sense to say “No” to the above question My goal is to give you a gem that was fond of me by some of the best to ever do it. This gem was dropped on me when i was sixteen yoa. I was told that debt management is essential to accumulating wealth and that anybody who knows anything about debt management would not even consider putting $10, 000 down on a $100, 000 dollar car.
That has to be counterproductive. A genuine hustler would use a $10, 000 dollar car to make $100, 000. That is debt management. I was told that the key to debt management is not to avoid debt entirely. The key to debt management is learning how to use debt in your favor. I have never forgotten this part of wisdom and it is a gem that can be applied to every part in our financial decision making process. The difference between good debt and bad debt is that good debt is going to pay for itself and put more money in your pocket while bad debt is money owed for an unnecessary item that you couldn’t pay for. Control yourselves people. Now it is time for another definition:
Necessary Debt: Any debt that is necessary to either the running of your business in order to taking care of your business is essential debt.
Examples of necessary debt integrate a car, a house, credit cards, student loans, and any other recurring business related expenses you will probably have. The biggest thing to understand about necessary debt is that it can either be good debt or bad debt depending on the circumstances. This is important. Due to the fact that we know that most financial consultants put the items that we listed in either the good debt or bad debt categories, My goal is to explain why I call the above expenditures necessary debt.
The Mortgage: The American Dream has become the American Nightmare. If you do not have been living under a rock you know that this once all-american investment is now under heavy scrutiny. People have been led to believe that their property is the most high-ticket purchase that they’re going to ever make in their life. This is not always true. Now and again it will be your mortgage loan that is the most high-ticket purchase you will ever make in your life. It is not uncommon to see the cost of getting the loan (the interest) total more than the principle of the loan itself. You get paying the bank $160, 000 to loan you $150, 000. So if you hold onto the house for the life of the loan you get paying $310, 000 for a $150, 000 dollar house. I know what you are usually planning, that the value entrance will appreciate over time thereby offsetting the interest charges on the loan.
That is what you were thinking right? Right? Well that would depend on the property that you are getting, but just by the millions of Americans who either lost their homes to foreclosure or are under the sea on their mortgages I think its safe to say that the appreciation of a property can not replace with a bad deal. If you can get a good deal on the house in that you get it at a price where your money is made when you buy, the mortgage that you take out on that house may very well be good debt. When i say that your money is made when you buy what I am saying is that you get the property at such a low price that even if the value doesn’t appreciate you would still turn a profit if you were to sell. This is the only time that a mortgage may very well be good debt. If you want a house simply because you are still waiting on hold to a dream that America woke up from many moons ago then that is your decision to make. Just understand that if you do not get the type of deal that we described above then you are taking on a bad debt. This is considered a required debt because you have to spend a money on a roof over your head, nevertheless, you can always rent or rent until you can find a deal that is worth locking yourself into for the next 30 years.
