What are differences between the good and bad debt

[Red Arrow]

quote:Originally posted by OUGrad05

quote:Originally posted by citicredit.asia

Debt in and of itself is not a bad thing. Both of us were able to start our own businesses because of debt; Steve began his own law practice, and Azriela began her own entrepreneurial consulting business. So we understand what debt is and why some debt is great debt.
Debt that helps you, enriches your life, is manageable, and is not a burden can be called good debt. For example, student loans are good debt if they enabled you to get through school and further your life goals. They are bad debt if you dropped out of medical school after one year to become a writer. A good debt helps; a bad debt hinders.
www.citicredit.asia

Stats show and prove that more than 85% of small businesses fail.  Of those small businesses that fail 92% of them fail because of debt soaking up their cashflow.  Thats the ugly side of the statistic that most poeple in the lending business refuse to talk about it.  

You could start a business without debt, greatly increase the chances of its success and ultimately wind up in the same spot or even further ahead.  Some of the best businesses in their respective fields are run with little or no debt.

I agree with one exception.

A company without debt (or with low debt) may be undervalued if it is publicly traded, making if ripe for a take-over by someone who only wants to split it up and sell the assets.  Then all the jobs go away.  I worked for a company that ultimately went away because of that.  Not directly but that was the final result.

[OUGrad05]

quote:Originally posted by Red Arrow

quote:Originally posted by OUGrad05

quote:Originally posted by citicredit.asia

Debt in and of itself is not a bad thing. Both of us were able to start our own businesses because of debt; Steve began his own law practice, and Azriela began her own entrepreneurial consulting business. So we understand what debt is and why some debt is great debt.
Debt that helps you, enriches your life, is manageable, and is not a burden can be called good debt. For example, student loans are good debt if they enabled you to get through school and further your life goals. They are bad debt if you dropped out of medical school after one year to become a writer. A good debt helps; a bad debt hinders.
www.citicredit.asia

Stats show and prove that more than 85% of small businesses fail.  Of those small businesses that fail 92% of them fail because of debt soaking up their cashflow.  Thats the ugly side of the statistic that most poeple in the lending business refuse to talk about it.  

You could start a business without debt, greatly increase the chances of its success and ultimately wind up in the same spot or even further ahead.  Some of the best businesses in their respective fields are run with little or no debt.

I agree with one exception.

A company without debt (or with low debt) may be undervalued if it is publicly traded, making if ripe for a take-over by someone who only wants to split it up and sell the assets.  Then all the jobs go away.  I worked for a company that ultimately went away because of that.  Not directly but that was the final result.

Excellent point, again I'm not anti debt for a business especially a publicly traded on but for small business owners running your business debt free and as little leverage as possible makes the business more stable and much more profitable during downturns...though growth doesn't occur as rapidly either.

[Red Arrow]

quote:Originally posted by OUGrad05

Excellent point, again I'm not anti debt for a business especially a publicly traded on but for small business owners running your business debt free and as little leverage as possible makes the business more stable and much more profitable during downturns...though growth doesn't occur as rapidly either.

Being debt free can be a matter of survival during a downturn for a small business.  Lost a job on that one too.

[tulsa1603]

After running up a $2000 credit card bill over a semester in college, and realizing how hard that was to pay off on the pittance I made in those days, I figured out that "If I can't afford it, I don't buy it".  If I can't pay for it now, why would I be able to next month?  Especially when next month there will be another "justifiable" purchase.

Mortgage debt doesn't bother me, as long as my house is increasing in value.  It's how developers make money.  Use someone else's money as the principal.  My first house I only owned for 2 years, but when all was said and done, I actually got paid to live there, despite paying interest, investing in some improvements, etc.  Or, say I got an inheritance that would allow me to pay off my mortgage... I think I'd rather invest that money in the market or in perhaps an investment property, since over time I think I'd be more likely to make a higher percentage than the interest on my house is costing me.

[Steve]

quote:Originally posted by Steve

quote:Originally posted by OUGrad05


It's entirely possible to pay for a college education today.  It takes sacrifice, in otherwords, you aren't partying your donkey off all the time but it can be done.  I did it.  It took 5 years but I did it by working full time while I was in school.  Total outlay by my parents was less than a thousand bucks as my dad helped with books.  I also paid my mom 450/mo rent while in school...so it can be done, just takes sacrifice.

What a refreshing story.  I am of your parent's generation, but have a similar story.  I graduated from TU with my bachelors degree in 1979, totally debt free.  Got my MBA in 1983, going back to night classes and taking advantage of employer continuing education benefits.

I decided years ago, that for me, any type of debt was "bad debt."  Be it credit card, mortgage, or whatever.  For the past 6 years, I have lived my life debt-free after paying off my home mortgage 13 years early.  I have continued since then to live "pay as you go."  It is great, not having monthly credit card statements and such, knowing that you are living within your means.  My thinking is that if I can't pay cash, I can't afford it, and that has served me well for many years.

I should qualify my previous post; mortgage debt can be good, as long as you don't take on more debt and terms than you can really afford.  Witness the recent "sub-prime" fiasco.  I blame that more on greedy borrowers than I do on preditory lenders, people wanting much more house and ammenities than they can realistically afford.  And, there are tax advantages for young borrowers with mortgage debt.  

Credit card debt is 100% bad, IMO.  I have credit cards, but for years I have never charged more that I could not completely payoff each month.  To carry a balance, you wind up paying twice as much for the goods and services.  Bad.

I have never financed a new car.  I have always paid cash + trade-in for every new car I have owned.  That may soon change, as new cars today are so expensive.  I currently drive a 15 year old Oldsmobile 98 that I ordered brand new in 1993, and she still has only 53,800 miles on her.  Very well maintained and still looking brand new, hopefully it will last me for at least another 10 years.

[tulsascoot]

quote:Originally posted by Red Arrow

quote:Originally posted by OUGrad05

quote:Originally posted by unreliablesource

Home Mortgage=good debt

Credit Cards=bad debt

Student loans=good debt

Gambling/Bookie/Dealer=bad debt

Student loans aren't good debt, just ask my wife.  

Work your way through school and PAY for it and you'll have immense freedom once you graduate

Education enriches your mind. That's a good thing.  Some career choices are more financially rewarding than others.  I was fortunate enough to go to college when a middle class parent and summer job working student could pay for school without a loan.

So you are class of '58 or something right. haha

[tulsascoot]

quote:
I currently drive a 15 year old Oldsmobile 98 that I ordered brand new in 1993, and she still has only 53,800 miles on her.  

That' only 3500 miles/year. I don't think many people could drive that little.

My commute is 30 miles round trip. That alone is 7800 miles per year.

It would be hard for most people to keep a car that long without it becoming horribly unreliable and worn out.

[Red Arrow]

quote:Originally posted by tulsascoot

So you are class of '58 or something right. haha

Not quite that old.  I still have a few years to retirement.