DEBT Perception - - The Good and The Bad

I was reading an article in a local magazine the other day regarding debt as a tool for wealth. Of course with current economic conditions, one would say that you would be crazy to go into debt or even think of debt as a wealth producing tool. This group of people perceive debt as a cause of wealth destruction especially during the current tough economic climate.

Personally, I think both statements are not wrong. With the current drop in Base Lending Rate by Bank Negara (and probably more dip coming our way expected), one can build up asset and be debt-free sooner rather then later. On the flip side, with current economic conditions its also important to keep debt in check.

The above statement may seem confusing right?

Lets start by understanding debt which can be differentiated by good debt and bad debt.

Good debt is something that helps you achieve your goals and can actually help you when you plan it right. For example, you use the debt that's acquired for constructive purposes such as buying a house, starting a business or even to pay for your education. This is of course in view that the debt you undertook is something that is within your capacity to pay and is used as a tool for wealth accumulation.


On the opposite pole, we got the bad debts. This are dept that mainly serve to improve or enhance your lifestyle (something that is not really a necessity but a luxury). If one think that our total lifetime income is of a finite quantity, then what we spend now unnecessarily now, will eventually reduce our overall quality of life in the future.


Next entry - Ways to capitalize on good debts. Stay Tuned!