Is There Such Thing As Good Debt?

When it comes to financial matters, you either have a liability or an asset. In the last few decades, people have become experts or “experts” when they know how to leverage debt. Now, it is already more basic to understand the rules of engagement with money. consequently, with that being said, is there such thing as good debt?

Good debt is an oxymoron just like jumbo shrimp, cost efficient, or efficient government. There are many euphemisms of debt such as leverage, credit, marginal accounts, etc. The bottom line is that if you owe money on someone or something then it is a debt.

The borrower is slave to the lender.

This concept should be taught and practiced at schools and businesses. Having some debt may go well when business (e.g. real estate) is well. When business is bad (e.g. real estate), debt will be a burden that can hinder or already eliminate your business. It is difficult to get that debt mentality out of our heads. For example, it is generally accepted that you have to go into debt (e.g. student loans) to go to college, buy a car, already buy food. We have this mentality to have it now and pay for it later. I remember when lay aways was as close to credit as one gets. For those who do not know or remember, a lay away plan is when someone puts a down payment on an item (e.g. clothes) and then makes regular payments until it is paid off. Then, and only then, they get to take possession of the merchandise.

How about a house? Don’t we need credit or a loan to buy one? That would probably be the best exception with some conditions:

* fixed rate

* manual underwriting (if the lender is too picky on credit ratings)

* no other debt

* 15 year mortgage

* the payments are not more than 20% of your salary.

Those are general conditions but have worked for many people especially in these difficult economic times. Naturally, I have learned from prior experiences with investment similarities. It is best to not have a mortgage (by the way, mortgage derives from a French information meaning “until death”).

So, it is safe to say that there is no such thing as good debt. It will help you prosper in tough times. It will help you prosper more in great financial times. Debt is a four-letter information to avoid.

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