Debt. Is it a good thing?

In my previous post, I talked about a few simple ways to curb spending and to avoid burying ourselves with debt. Well, is debt really a bad thing? To be honest with you, as far as I know, there is no rich human being in the world who got to their position without any assistance of debt. Minus celebrities and those who got rich by inheritance of course.

Debts can be categorised into two. One is Good Debt and another is Bad Debt.

Main difference between these two is that by their ability to make us wealthier. Bad debts are debts taken by us to purchase things that do not appreciate in value. In fact, most of these items depreciate in value. For example, car loans, personal loans, Court Mammoth’s loans, Harvey Norman’s loans, and etc. Stay away from bad debts!

Good debts on the other hand are debts that are obtained by us to purchase assets or things that can appreciate in value which then increases our net worth. For example, taking up debt to buy shares, properties, managed funds, unit trusts, and etc.

I do agree that sometimes, we can’t escape ourself from bad debts. I mean, how many people are able to purchase a car and pay cash in one go? The rule is to stay away from bad debts if you can. If you can’t, you need to know how to manage your obligations properly.

In my next entry, I’ll try to address the question of taking loan to invest in ASB.

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