Monday, January 7, 2013

Financial Food for Thought (Good debt-vs-Bad debt)

Good debt is when money is borrowed to pay for something that has the potential to increase in value or produce short or long-term income. Taking out a loan to start a business, buy real estate, to invest in stocks, bonds, etc, or to pay for your education (which can increase your income as an employee) is consider to be good debt.
  Bad debt is when money is borrowed to purchase things that will immediately decrease in value, nor do those things have the potential to produce long or short-term income. Borrowing money to buy things such as cars, clothes, etc. which quickly loses its value is consider to be bad debt.
  The average person doesn't make enough money to buy everything with cash, which is why people borrow money. However, if you pay for things with cash instead of credit you can save yourself a lot of money. By paying with cash you avoid paying interest on borrowed money. If you are considering taking out a loan to buy something that has the potential to increase in value or produce income, research it carefully to determine whether or not the rewards are worth the risks and if you still think it's a good investment then go for it. Remember that even though an investment may appear to be a really great idea, sometimes even the best ideas don't always unfold as planned.
Edited by Reginald Forest

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