Good Debt Bad Debt
Not all debt is created equal and it’s essential you learn the difference.
Debt is not a dirty word, but many of us grew up thinking it was to be avoided at all cost. My parents had a mortgage to buy the family home that they dutifully paid off. They never borrowed for anything else in their life.
On the one hand, this is good. They didn’t have debt for things like cars that depreciate over time. On the other hand, they didn’t use debt to get ahead financially.
What is debt?
Debt is basically money that you have borrowed from someone else to buy something. You have to repay this money over time and the person who lent it to you usually charges you interest as their reward for lending it to you.
A debt might be a loan from your Mum, a credit card, payday loan, a car loan, store credit, a business loan, a home mortgage, an investment property or other investment loan. One thing is certain… not all debt is created equal.
Let’s talk good debt
Good debt is effectively for anything that is likely to appreciate in value and generate income. In Australia, you get a tax deduction for the interest cost of borrowing to offset the income tax payable on the income you generate from the investment.
