Are there good debts and bad debts? Debt is an asset to the lender and a liability to the borrower. It’s a 2min read, more effective and more interesting…
What is Debt?
Our definition will be based financially, Simply on the state of owing money. It can involve assets e.g. real properties, business, and things of value. Loans and Credit are forms of debt. Do not confuse the two, LOANs are agreements between two parties, Credit is also a form of debt but it is the amount of money you can borrow.
A Country with credit supports the economy to grow faster. Business people, inventors, and entrepreneurs are beneficiaries of debt. An economy without credit provides hard times for individuals since they have to increase their productivity rate in order to earn more.
Don’t fear debt
Debt is just un-paid cash, though with contingencies but not hard to manage. Our fear of taking debt is creating unnecessary theories and exaggerations. We somehow fear money and think all rich people are evil, doing illegal business to gain wealth. Our mindset has enslaved us to hate money, and despise it, so when we see someone with a lot of money, we automatically assume the individual is evil. Debt, in our case, is just unpaid money. Shift your thinking, will you take $23,000 dollars in debt or 50$ in cash? The fear is engrained deep in our minds, transferred generationally, you have to stop thinking like that right after reading this. The problem is inside, not outside.
Everything is Risky
At the time of writing this, there was no guarantee it would have reached you, no guarantee you will comment and like or love this, and maybe subscribe to this site! We are all blind to every event. Financial advisors call it ‘calculated risks’. There are so many things that can go wrong, like dropping your phone while reading this, ‘sure’ is just a word for ‘we strongly hope’. We need to look at things as they are not as we wish them to be. Taking debt is surely risky, Even when you use your job as collateral, what if you get fired the next week? We are not preaching bad luck, but we assume evil and it hits us every time. We do not know tomorrow, but what we know is; our actions today, will add to what tomorrow will look like.
Do I need the loan?
Remember the first statement! Debt is a liability to the borrower and an asset to the lender. You need to ask yourself three questions, Why, What, and How? Why do you need the money as debt? What are you going to use the debt for? How will you refund the debt back? Let’s look at them.
Is it really necessary? If it was not an option, what would have been done? Is it worth the effort? If the Why is something unnecessary then you should not proceed.
What will the debt do? Will it purchase an asset (money maker) or a liability (money sucker)? If you buy a car to use as a taxi, then you are credit-worthy, and in good debt. Buying A car because it reduces your Travelling expenses is savings, not an investment, and buying a car because you need a lifestyle is a liability.
How fast will your asset generate cash to pay the debt? Buying a Television with debt money is not advisable!
What is the cost of the asset? Is it a death and life situation? and how soon can the money be returned.? The Point here is to gain clarity of your need and make an accurate decision.
Know your Numbers.
If you have not read this, for better understanding, please do, https://1hometvke.wordpress.com/2022/09/19/3-simple-money-management-as-a-single-parent/. You need to understand your numbers and let them flow like your hands. We need to understand what accounting is, whether we learned it at school or didn’t. Now the question remains, do you need debt to buy a car? Comment below.