Where Does Our Perception Of Debt Come From?
Our ideas about debt are long held and deep seated. Many of us have had the same idea drilled into us from our parents, from the media, basically from the world… that debt is bad.
Debt gets you into trouble. Debt holds you back from doing the things you want to do. Debt prevents you from being able to own a home.
These perceptions are old fashioned. They stem from the time of the Great Depression and earlier recessions where debt crippled many families. To prevent the same disaster from happening in modern times, each and every one of us was probably schooled that you should never have too much debt.
But, not all debt is the same. Certainly, there are some forms of debt that are not ideal for your financial health. Then there is the kind of debt that increases your financial position and gives you cashflow. This is the kind of debt you want to embrace.
That is good debt.
Good Debt vs Bad Debt
Understanding whether a debt is considered good or bad will help you to make educated decisions about your financial future.
Bad Debt: Anything that you borrow from any kind of lender that you have to pay back out of your own personal earnings is considered bad debt. If it cuts into your income, then it isn’t good.
Good Debt: Money that you have borrowed that pays itself back is considered good debt. So, if you had an investment property with tenants that paid rent, their rental payments would cover the cost of your loan repayments. It would not cost you anything and over time it would actually start to make you money.
A great example to explain how good and bad debt works is to look at a business. When a business borrows money or uses their overdraft to buy stock, then that is considered a debt. If they onsell that stock for a profit, then their debt would be considered good – it did not cost the business anything.
However, if they borrowed money or went into overdraft for items that did not produce a profit – such as furniture, fittings, or a fancy lunch – then that would be considered a bad debt. It cost the business to buy those things, but there was no return on their investment.
This same concept applies to investing in property. Buying a home to live in, while necessary, is not considered a good debt as you have to pay the loan repayments out of your own pocket. However, borrowing money for an investment property is considered a good debt because it won’t cost you anything – your tenants will pay your mortgage for you.
How To Change Your Thinking
To be able to change the way you think about debt, you have to embrace the fact that some debt is good.
That is not a licence to go out and chalk up a massive credit card bill. That is not considered a good debt. But, if you have an opportunity to grow the money that you borrow and create a profit, then that is worth the investment.
You need to remove your own barriers to open yourself up to a world of possibility. Stop thinking that age is a barrier, or that a certain level of income is a barrier, or even that pre-existing debt is a barrier. These are self-imposed barriers. With the right advice and tactics, you can borrow money to invest in property.
Would you like to know how it can be done? Would you like to know how you can retire in style (whenever that might be) without the constant noose of paying off debt around your neck?
Then get in touch with the team here at Ronovationz today. Property investment is possible with the right mindset and the right advice. Drop us a line today.