Making Debt Decisions

By | 04/09/2011
There’s no such thing as good debt or bad debt. Some debts are better than others but it’s always a bad thing to owe someone else money. However going into debt doesn’t have to be a negative experience,. You can use debt to generate life enhancing experiences like financing a kitchen stove because your old one broke, or leveraging your investments which can potentially boost future profits and make you richer, faster.
I don’t think having credit card debt is necessarily worse than having a mortgage or student loan debt because interest rates, tax laws, and fiscal regulations change all the time. All debt has a negative impact on our finances, but sometimes in order to enjoy a better lifestyle (like buying a home, a car, or clothes) we have to make sacrifices and take on debt to create an overall net benefit to our lives. Using debt successfully is all about maximizing value without taking on too much liability or risk. If we do decide to go into debt we have to look at the big picture and ask ourselves is it for the right reasons, eg: will it add value to our lives overall?

Before going into any debt always have a plan to pay it off first. When you are taking on debt for investment purposes do all your calculations in after tax dollars to get a more accurate picture. And in most cases you will pay less interest on loans with a floating interest than a fixed one.

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