An interesting fact that may surprise a lot of people is there are good debts and bad debts. Not all debts are bad as debt is almost always necessary to acquire more investments and thus expand your portfolio.
What is the main difference between good debt vs bad debt?
The difference between good debt and bad debt is that good debt is tax deductible while bad debt is not. Good debt is debt that is taken on for the purpose of growing your wealth or growing your income producing properties. Debt that is used for investment properties are considered good debt.
On the other hand, bad debt is almost everything else such as home loans, car loans, personal loans and even credit cards. These type of debt are bad debts because they are not tax deductible.
What should I do about my debt?
A general consensus to every investment portfolio is that good debt should be maximised and bad debt should be minimised. After minimising your bad debt, you should work on eliminating your bad debt altogether. Often, this can be achieved sooner with the help of refinancing or debt consolidation.
Once all your bad debts are fully eliminated then only you should work on minimizing and finally getting rid of your good debt.
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