When it comes to debt, most people, even I think that it is bad. Debt makes us in financial trouble if we could not pay it. However, debt can be the God and the evil.
When it comes to business world, most of the companies, regardless of the size, often has debts in their financial statement. Yet, those companies can still manage to get profit and make its shareholders wealthier.
I want to refer to the successful companies, not the failure ones. Why they can make profit even when they are in debt? Because they use the debts to generate the money, meaning that they use the debts for their daily operations, which in return, they can get the income to cover the monthly payment.
At the end of the day, they get profit, become wealthier, and be able to pay back the loans. This is the good debts, “using debt in the right way.”
Yet, debt can be the evil and bad luck to both individuals or legal entities. For example, Mr. A borrows $1,000 to buy a laptop. To pay back, Mr. A needed to take a part of his salary monthly. The laptop is for personal use only and does not generate any single cent to Mr. A. In case Mr. A lose the job, he would in trouble to payback the debt. Here, I don’t say that do not borrow money to buy fancy stuff, but make sure that you have ability to pay back the loan and exactly have other sources of income to help you. At least, use some part of your debt to make money for you. I myself, used to be in trouble of bad debt. I borrowed money to keep with me. Day by day, I used the loan for my personal expenses. When I changed the job, I borrowed my friend’s money to payoff the loan. Then, I was still in the circle of owing everyone, just to pay the interest and principle. At the end of the day, all my salary is for paying debt and have been working for more than 10 years, what is left is debt, not assets.
All in all, debts can be a bless or curse depending on how you use the debt for. It is better to use the debt to create money. If you want to know how, I recommend you to read “RichDad’s book: rich dad, poor dad, cashflow quadrant,..etc. Wait, my next article will be about Assets.
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