The difference between good and bad debt is essential to understand and recognize. Owning your home car, dining out, and generally enjoying life all cost money and create debt. While debt is essential to everyday life, it can also wear out its welcome and wear down your desire to dream of a better tomorrow. One of the reasons so many Australians are restricted in their ability to achieve their financial goals is that they are simply ‘drowning’ in debt. When you are deep in debt, you limit your ability to build wealth before you’ve even had the chance to start. That’s why you need an effective debt elimination strategy, a customized action plan, and a clear understanding of the difference between good and bad debt. The difference between these two types of debt can be distinguished as follows:
- It is used to make lifestyle acquisitions
- Does not generate an income stream
- Interest cannot be claimed as a
- The interest and debt must be repaid from personal ‘after-tax’ income.
- Must be eliminated as quickly as possible
- It is used to acquire investments
- Generates an income and appreciates in value
- Interest is tax-deductible
- Revenue generated from investments is used to
Getting into debt to finance a real estate investment is not considered bad debt. For many people, buying a they will ever make and the most significant debt they will ever enter into. Sometimes, getting into good debt can be pretty tricky – it can be hard to qualify for your first mortgage and a difficult decision for lenders to make when choosing you to loan money. To be granted a mortgage, there are specific criteria to qualify for before the lending institution you up for that notorious 30-year loan.
To borrow money for your first mortgage, you need
- Proof of income
- Proof of savings
- A deposit (in most cases)
- Strong nerves!
Always consider serviceability when borrowingit’s good debt. Serving the mortgage repayments is an essential part of the battle. Ask yourself these questions;
- Can I withstand interest ? If not, should I fix my rate?
- Is my income to repay a mortgage?
- Are my expenses too steep? What can I cut down on?
- What is my backup plan if the mortgage gets to be too much?
- Do I have the correct type of insurance?
- Am I borrowing this for the right house, in the right place, at the right price?
mortgage brokers, accountants, lending institutions, financial advisors, and legal experts before signing the dotted line for your first mortgage. Start considering if each debt you incur is good or bad, and make the good outweigh the bad in any way you can.is, unfortunately, not always an excellent debt-type transaction. If you make the wrong decision at the outset, borrow too much, you already have negative equity before starting. Seek advice from