How To Get Out Of (Bad) Debt

What The Hell Is Bad Debt? Isn't All Debt Bad?

Bad debt is debt that costs you money… It is something that you have to pay every single month. I know you must be thinking “Duhh!!!”… But hold on a sec.

Let’s say that you borrow money to buy a car for your personal use. Every month you have to pay that debt off, and this car although useful, doesn’t make you any money. As a matter of fact, it costs you extra money to keep it in good shape. This is bad debt.

As a general rule, any debt that you take and that doesn’t make you money in return is bad debt. But debt can be used strategically!

Wait... How Can Debt Make You Money? What Is Good Debt?

Now, let’s take another example and say that you borrow money to buy a parking lot and that you rent it.

If on the one hand you have to pay $200 of debt every month, let’s say that on the other hand, the money that you are getting from renting the lot equals to $300 per month.

So on one side you are getting $300 and on the other side you are paying $200.

$300-$200=$100.

Your parking lot is being paid by the rent you are getting, and you are making an extra $100 on top of that. In this case, being in debt is making you money – this is good debt.

Now, this is an oversimplified example that doesn’t take into account taxes and unexpected events, but you get the idea.

So Why Do So Many Financial Experts Advise To Get Out Of Debt?

Getting out of bad debt as much as possible makes sense. However, good debt is a powerful tool that can give tremendous leverage and rich people understand that.

The best example of that is real estate – fortunes are created in real estate by using other people’s money a.k.a debt.

Donald Trump once said: “Don’t forget, I’m the king of debt, I love debt”. And that was before he was elected president, no pun intended.

In conclusion, instead of getting out of debt altogether, learn to use debt to your advantage!