When you look at your bills each month, you may feel overwhelmed by the amount of money that you’re spending on debt. Sometimes debt might seem like a trap that you only want to fight your way out of, but not all debt is bad.
Billionaire Chris Kirubi has sensationally advised on staying off the debt hook.In his post Kirubi has advised anyone with plans to borrow to consider a few things.
“Before going into debt this year, make sure you really ask yourself why you are borrowing the money. Taking out a loan to finance growth of your business can be scary so make sure you map out all scenarios from the best to worst and have a plan to deal with each one.”
Good debt
Some of your debt might be considered an investment. You’re probably thinking, “How can anything as bad as debt be considered an investment!” If you took on the debt to purchase something that will increase in value and can contribute to your overall financial health, then it’s possible that debt is a good one.
Bad debt
When you use debt to finance things that can be consumed, you’re taking on bad debt. This is the kind of debt that creates an unhealthy financial situation. Credit card debt is often considered bad debt because of the nature of items that credit cards are used to purchase. You should never use debt to purchase everyday items like clothes or food. If you use a credit card for these types of purchases, it should be intentional, e.g. for better financial management or to earn rewards, You should pay the balance in full each month.
Good debt is obtained through making wise decisions about your future, not for the sole purpose of having good debt. For example, you might make the decision to obtain your Master’s degree to increase your earning potential. Taking out a student loan, if you have no other way of financing your education, is a valid reason for taking on additional debt.
You must still be careful that you don’t take on too much debt, even if it’s good debt. If you’re overloaded with debt, then it doesn’t matter whether the debt is good or bad, it still hurts your financial health.