Is there such a thing as Good Debt?
According to all the financial experts, the answer to that question is an unqualified YES.
In a nutshell, you are taking on a good debt when you are “investing” in your future. Bad debts are incurred when you are buying something today or paying off something you purchased in the past that will depreciate in value. Most credit card debts are bad debts … you just HAVE to get that wide screen TV right now. You need a holiday and can’t really afford it, so you slap that onto the credit card as well. You are basically taking on debt with no hope of ever recouping your interest payments. You would not be able to resell that TV set for even 1/2 of what you paid for it, the minute after you walked out of the store.
Here are a few examples of good debt … an investment in your future:
- Borrowing money to maximize your RRSP contributions will help you grow your tax sheltered retirement fund faster.
- Investment properties including your home or rental properties.
- Student loans are an investment in a good career, and your future earnings.
- A business loan, will help build and grow your business.
Bad debt will end up limiting your resources becasue you are not only paying for the product or service, but are paying a high price for servicing your debt.
- Maintaining a balance on credit cards or department store cards. If you can’t pay off your credit card monthly, reconsider your purchase.
- Using borrowed money to purchase items that will depreciate in value.
- Cash advances on your credit card. Unlike other purchases, interest starts accumulating the instant you get the cash advance.
- Deferred payments … such as “do not pay until 2011″ have hidden financing charges. You are paying for the “privilege” of the deferred payment, it is just hidden in the setup charges.
Justin Blacklock and Mike Averbach can advise on a mortgage strategy that meets your needs, including consolidating high interest consumer debt into your mortgage. Call today to learn about all your financing options.
