Financial Understanding: Are Debts Good or Bad?

A lot of people will probably advise you that you should play it safe, never get into debt, just save up the money you make and so on. But when you analyze the lives of the top richest men you start to see that these men get into lots of debts. It makes one wonder - are debts really good or bad? But the answer is a little more tricky; and is it depends on how you use debts.

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Facts are - debts are a double edged sword, you can either end up happy or sad. Now the hanging questions is - what are good debts and what are bad debts? For most average people, they get into debt to buy things that don't appreciate in value. In order words, they get into debt to buy liabilities. These liabilities also continuously take money from their wallet.

But the rich always get into debt to buy assets. They make sure that these assets appreciate consistently in value. And while the assets appreciate in value, it also makes them passive income while doing so. Hence, they buy things that they can sell at much higher price, and during the time of owning it, it continuously bring in cash.

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As a result, they steadily pay the debt and at the end own the property after a few years. The rich also structure the payment such that they won't run into any problems in making their regular payments. As opposed to the way, poorer people handle debts. Poorer people always make the first and biggest mistake - of buying something that doesn't make money.

For example, you see people going into debts to buy an expensive car. Not just that they don't really urgently need a car, they also have to start fueling the car and maintaining it when problems come. Because of all this, the payment of the debt becomes tough. Even if they manage to be paying the debt, other areas of their lives suffer for this, and they don't progress financially easily - these are bad debts.