It is true that money can’t buy everything but the fact still remains that it is one commodity that can an individual afloat in this rat race world. The real problem with money is that if it is not enough, people’s tendency is to borrow to either cover their expense deficit or to simply use for other important purposes. However not knowing how to borrow for the right reason can cause the individual a mountain of financial problems.
“Good Debt” and “Bad Debt”
Remember that every decision an individual makes will either turn out to be good or bad. If decisions are done haphazardly there is a good chance that its outcome will be disadvantageous to the decision maker. In the same way, BORROWING money for the wrong reasons will definitely cause financial problems to the borrower. When an individual borrows money to finance a son’s or daughter’s education, the loan can be termed as a “Good Debt” this is because the proceeds of the loan will turn to be an investment both for the children and their parents. Borrowing to finance the purchase of a house or property is another good example of a good debt. Both examples show that the loan was used as an investment which in the future would turn out to be profitable for the borrowing parties. But if you borrow money to upgrade your car, (even though the old one is running fine) or to cover entertainment expenses or to pay current bills then this will turn out to be bad debts. Always remember to study carefully on the outcome of the loan. Make sure that before you borrow, analyze how long you would have to pay for the loan and compare it to how it will affect the benefits that you may derived from the borrowed money.
Getting the Right Loan for the Right Reason
Using your home or property as Collateral to finance a business venture or to upgrade the capital of an existing business can be a very bad reason to borrow money. Never use an existing asset to fund other ventures such as a small business. If the business collapses you lose both your home and your business.