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WEALTH BUILDING THROUGH REAL ESTATE: Bad Debt vs. Good Debt

Wednesday, August 16, 2023   /   by Jiselle Bersabe

WEALTH BUILDING THROUGH REAL ESTATE: Bad Debt vs. Good Debt

Understanding the difference between good debt and bad debt is crucial for achieving financial success. Let's delve deeper into these two concepts:


Bad Debt

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Liabilities that deplete your financial resources without creating an income stream are referred to as bad debt. Essentially, it is debt that has no long-term worth or usefulness. Car loans, credit card debt, and expenses associated with unhealthy behaviors are common instances of bad debt. The issue with bad debt is that it gradually destroys your net worth as you continue to make payments while receiving no significant return on your investment.


Good Debt

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Good debt, on the other hand, is when you borrow money with the goal of generating an investment that generates income or increases in value over time. It involves borrowing money to purchase assets that have the potential to enhance your financial status. Real estate investments are often considered as good debt since they can generate consistent cash flow through rental income, give tax benefits, and have the potential for long-term appreciation.

When making financial decisions, it's important to carefully evaluate whether the debt you're taking on falls into the category of good debt or bad debt. Consider the potential long-term growth and benefits that the debt may bring. By choosing your debts wisely and focusing on building assets that contribute to your overall wealth, you can make informed financial decisions that align with your long-term goals. Remember, the key is to use debt as a tool to create opportunities and maximize your financial well-being rather than allowing it to become a burden that hinders your progress.

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