Have you ever thought of turning your debt to create your wealth?
Generally speaking, debt always suggests a negative meaning. Many of us think of it as an outflow of cash and is expected to leave our pockets behind. Probably it’s because of the word “interest” that they become allergic to it and most of them don’t want to commit.
Today, let us break that belief and see how you can turn your debt into increasing your wealth, and who knows you would start considering having one.
What is debt?
As defined, debt is an obligation that requires the debtor to pay a certain amount of money to the creditor or lending institution based on the agreed-upon value. It can be paid on weekly, monthly, or other terms including the interest. These are commonly offered by banks or private lending companies on and offline.
Two Types of Debt
If you are relying on a single definition of debt before, today, you’ll learn that you can categorize them into two. You would commonly hear this from the people in the financial industry especially those who understand the A to Z of financials.
Bad Debt
In huge companies, bad debt is an expense that a business incurs once the repayment of credit previously extended to a customer is estimated to be uncollectible. It may sound too formal but this is also applicable in our normal lives or scenarios.
For me, borrowing money to acquire our desires or wants in life can also be considered as bad debt that can harm and exhaust our financial goals.
Several examples are car loans, credit card debt, borrowing money to buy a brand new phone that isn’t aligned to pursue our goals in life. Don’t get me wrong, what I mean is if it’s for pure pleasure alone and you know that you aren’t capable of paying it, then I believe that can be considered as a bad one. But if you are having a car loan for business purposes, or you will be using it to start a physical or online store, then that’s completely another story.
Good Debt
In contrary to bad debt, good debt is used as leverage to increase wealth or cash flow. Good debts are commonly used by small or huge businesses to provide additional working capital.
Companies believe that the amount of money they borrowed will yield a greater return comparing to the interest stipulated on their debt agreement.
For example, they are lacking working capital to purchase additional supplies needed in the production of certain goods. In this case, they can decide to commit to a debt agreement with 5% interest. They will not be hesitant to avail it since they are expecting a greater return, even bigger than the 5% interest rate.
That is one example of how you can maximize or turn your debt into creating wealth.
Perhaps you can use debt to start your dream business, getting a student loan, investing in various instruments, or investing in building a rental property. The choice is really yours. What matters is you should know the interest and how you can maximize it, how you can grow it.
Good Debt Can Save You
Debt is not always bad, you can also use it in a positive way, and if you want to gain wealth through debt, you must first assess that the money will give you some economic benefits.
You can do it by ensuring that the amount of debt you’re expecting must be greater than the interest rate specified in the agreement.
So whether you are thinking to elevate your business, finances, and other things that can make your money grow especially in these tough times, do not hesitate to consider having a loan or debt. Be a smart user.
So today, if you’re looking for someone who can help you, Par Pahiram is here.
Par Pahiram is a registered financing company in the Philippines offering short term financial solutions to individuals and SMEs (Small Medium Enterprises). Par Pahiram offers low-interest-rate so you can easily settle it and leave yourself without burden plus the process is really quick!
If you want to know more about us, visit our site or leave us a message.
