GOOD DEBT AND BAD DEBT

One will wonder if there is anything good about debt. Is debt not a monster that everyone seeks to run away from? Yet almost all facets of our lives are built on debt. The society has been wired in a way that it appears almost impossible to stay away from debt. What is good about debt? A lot of people have committed suicide because they went bankrupt. A lot of people are still battling with all manner of debts. Am not a debt expert anyway, just a common citizen who has also romanced debt to a degree.

Surprisingly still, there is good debt. I learnt from Robert Kiyosaki, The author of the popular "Rich Dad, Poor Dad",and many other financial literatures, that not all debts are bad debts. When you borrow money from banks to invest, that is good debt. When you borrow money to increase your asset, that is good debt. It is good debt because it will bring returns on investment. But any debt channelled towards liabilities(anything that takes money away from you), is definitely a bad debt. We must see assets as anything that generates inflow whether in the short or long run. If you borrow money to build a house that you end up living in, especially when you could give it up for rent and take up a smaller apartment that your rent inflow can even cater for and still leave you with a balance, then you are in for a bad debt. Where reverse is the case, then you incurred a good debt.

A few steps you could take to stay away from bad debts include
1- live within your means

2- Draw up your budget and stick to it

3- Prioritise your time

4- know what your assets and liabilities are

5- Do not borrow to spend

6- Do not live to impress others, keep it real

7- Invest part of your income

8- Do not neglect savings

9- Surround yourself with wise men

10- Read financial literatures, get financial education.

11- Diversify your income streams

The list is obviously not all there is, but a few panacea for bad debt. I hope this will be helpful for some of us.