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“Good and bad debt”

Do you know there is something called good debt?

For many debts are just debts, a reality most try to avoid because you may end up becoming a slave of never-ending payments.

People know debts are a problem, but many would argue that without being in debt, they could not be able to access things. Buying a car or a house with cash feels like impossible for the average person. Our financial system makes people be in constant debt, and average salaries are not enough to purchase an apartment, a house, or paying in full a student loan.

There are certain things that we acquire that can undoubtedly cause a much higher debt than others. This will depend on the analysis capacity that each individual has when it comes to choosing a loan or better deals — being able to identify interest rates and a capital gain of a property that will undoubtedly have a long-term effect that can be beneficial or disastrous for the consumer.

According to Investopedia:

Good debt is exemplified in the old adage "it takes money to make money." If the debt you take on helps you to generate income and increase your net worth, that can be considered positive.

While good debt has the potential to increase a person's net worth, it's generally considered to be bad debt if you are borrowing money to purchase depreciating assets. In other words, if it won't go up in value or generate income, you shouldn't go into debt to buy it.

Good debt sounds excellent, and it would be great for everyone to acquire only this type of debt, but the truth is that bad debt is difficult to avoid. One of the most common assets, I believe, is purchasing a car. You will be surprised by how many people believe having a car is an investment, and unless you bought the car to generate revenue. The truth is once you leave the car lot with that brand new car, it is already less than what you paid for; thus not an investment.

There seems to be a grave misunderstanding about what an investment is.

Plain and simple:

An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

So, if most people are obligated to acquire debt because of how our financial system runs, then why not try to access loan but invest them to receive retribution later? Most people have poor economic knowledge, and these concepts and strategies can be scary; scarier than having to pay decades of installments. Nonetheless, I believe acquiring a loan to generate good debt, can be done in many cases. I've read stories where people have asked for loans to invest them in cryptocurrencies later. I am not saying this is what you should do, but if you do, you have to have knowledge trading, or the investment can turn out to be a disappointment.

I believe good debt is a positive concept for people, but it must be done with caution. People must know where the odds are because they can end up with bad debt.

I hope you enjoyed it!

By: Carolina Pérez

Twitter: @carolinaninap

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