Good Debt vs Bad Debt

Rich - Good Debt vs Bad Debt

We have been brought up to view debt as ‘bad’, and typically focus on trying to ‘get out of debt’. Yet debt is often used by the rich to get richer faster, by using ‘someone else’s money’. There is a clear difference between ‘bad debt’ and ‘good debt’. Bad debt is used for consumption, while good debt is used to create assets.

Robert Kiyosaki Training – Good vs Bad Debt

Robert Kiyosaki – Good Debt vs Bad Debt

Not all debt is bad. Bad Debt is used for consumption, takes money out of your pockets and makes you poor. On the other hand, Good Debt is used to buy assets, puts money into your pockets and makes you rich. Learn more in this short presentation by Robert Kiyosaki.

Good debt helps you get rich, Bad debt makes you poor: If you want to get rich, load up with ‘good debt’. When you want to become rich fast, it it important to have enough starting capital, and borrowing ‘good debt’ helps multiply the capital that you start with.

Good debt buys assets, Bad debt buys liabilities:

Good debt has positive cash flow: If what you buy with debt put’s money into your pocket, it is good debt.

Robert Kiyosaki – Author – Rich Dad, Poor Dad / Cash Flow Quadrant / Guide to Investing

Bad Debt

Bad debt is a form of debt that is used for shorter-term consumption. While this does lead to an immediate gratification of your needs, such debt has a large negative impact on your longer-term well being.

Bad debt is highly prevalent and takes on the form of most debt’s that the average person accumulates – credit card debts, home mortgages, auto loans, consumer durable loans etc.

Any time you borrow bad debt, you are essentially robbing from your future self. Such debt allows people to essentially live a lie, by allowing them to buy things that they cannot truly afford.

Good Debt

Good debt is a form of debt that is used to buy assets, that lead to a positive cash flow over the medium to longer term, helping repay the interest and principal of the debt.

While bad debt is very popular amongst individuals and the poor / middle class, good debt is the form of debt taken by corporates and the rich. Not only does good debt allow the rich to accumulate assets at a more rapid pace, but it allows them to do so in a highly tax efficient manner.

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