Proper management of debt is a determining factor in generating wealth, debt has two faces, one that produces good and bad that it hurts.
Although in some cases can be a great partner and a very powerful element of leverage, unfortunately most people have bad debts dramatically limit our ability to be financially healthy, prosperous and successful.
A good debt is that which enables us to acquire an asset that will ultimately be productive. For example, buying a house or apartment, the children’s education or starting a business, among others.
On the contrary, a bad debt is usually channeled to consumption (purchase of various items or unnecessary expenses, misuse of the card or great deals to 12 months) that usually comes to exceed our ability to pay.
First, it must prioritize the needs so as not to incur a bad debt.
For example, if a driver wants to buy a new car, he’ll be a good debt because it will generate future income. Instead, “we want a Ferrari, but not enough to buy and maybe acquire a simpler” and if we persist in buying could become a bad debt.
This will depend a lot on how our needs hierarchy. It is important to always consider whether what we buy what we really need and, especially, how I’m going to cover this good I want to buy.
Usually people borrow because they want to invest in something else: in a business in any building on something that pays off, for otherwise it’ll not take that loan would be good if the interest rate we charge is high or we can not meet the debt each month, because a failure is always more expensive. (continue reading…)