Is there such a thing as good debt?

Building a solid foundation to manifest your big dreams in an evolving financial market may seem intimidating. While it’s possible to live debt free, it may not be the smartest decision when planning your Financial Independence. Often debt may be seen as “bad” or a terrible burden, however, it can be used to increase wealth or one’s capacity to earn more. Hence, good debt is an investment that will move you towards your long terms goals and could improve your quality of life.

An example of a good debt that will grow in value is acquiring a mortgage. Property is an appreciating asset that increases in value each year, all things being equal. When considering homeownership by way of a mortgage, the lower monthly cost of rent may seem more appealing. However, rent is an expense that has to be paid every month and will likely increase over time and will ‘disappear’, while a mortgage will develop into equity that will increase in value over time and the monthly payment is usually fixed. Additionally, the home equity generated from paying a mortgage every month may be used as collateral to make additional investments to generate income such as start up cash for a business.

Bad debt is considered debt incurred for purchases that will lose their value quickly and do not generate income in the long run. A prime example of bad debt is making a purchase for a pair of designer shoes that will be out of style before your credit card balance is even cleared. Now more than ever, planning for the Financial Independence of yourself and your loved ones is important. Talking to a trusted VM Financial Service Specialist is a major key to fulfilling your goals of higher education, home or auto ownership.

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