Interestingly, not all debts are bad! In the book “Rich Dad, Poor Dad” by Robert Kiyosaki, he classified debts into two – the good debt and the bad debt. Now the question is what is a good debt and what is a bad debt?
Good debt is a type of debt that is used to acquire something that will make you generate more income. For example, you take a loan to purchase an apartment building to be rented out is a good debt because it will generate income after. Another example of good debt is taking a loan to establish a business because it will produce income later on.
Bad debt is another type of debt that is used to purchase something that does not generate income. For example, you take a loan to buy a car is an example of a bad debt because it has no potential to generate income. Another example of bad debt is taking a loan to go for vacation or to spend to a lavish occasion such as wedding, birthday and baby shower.
Not because there is good debt, you will take a huge amount of loan and invest in a business! You should know how to calculate the risk and foresee the returns. Because if the investment fails, then the debt will also increase your losses. Always conduct some research if the future return is worth the risk.
Since you know already the difference between good debt and bad debt, what have you been acquiring in your life? Is it good debt or bad debt?