good-debt-vs-bad-debt

Good Debt vs. Bad Debt

Good debt vs. bad debt. How to their differences? It just doesn’t get any simpler than this. Good debt is debt that you use to make more money. Bad debt is money you borrow to buy stupid stuff that you don’t really need. The Poor and the Middle Class seem to be addicted to bad debt. The rich love good debt because of how quickly it can grow their wealth.
good-debt-vs-bad-debt

Why the Rich LOVE their Credit Cards

Show me a successful Real Estate Investor, and I’ll show you master of leverage. Using other people’s money to fund your ventures is the quickest way to grow wealthy. Even if you’re a prodigy like Warren Buffet, and you make 20% plus a year in the stock market, it can take you decades to become a millionaire. In fact, that’s why Warren Buffet started an insurance company. He leverages other people’s money to buy his investments on a much larger scale.

Real Estate Investors do the same thing. Just in a slightly different way. They will either borrow money from private lenders. Or more preferably, they will put as much of the expense as possible on their credit cards.

I know what you’re thinking. “Credit Cards” have super high-interest rates. Yes, that’s true……unless you just took a new one out that doesn’t charge interest for the first year. Then it’s free money. Why do you care about interest owed in a year, when the proceeds from your real estate deal will pay off the debt in 6 months?

“But what about the cards that start charging interest?” Well then the investor will probably call up the credit card company and ask for special promotional periods where they can defer interest. They do it all the time when you tell them you’re rolling over a balance from another credit card.

Credit cards know that they are only going to get to charge interest on some of the money they lend out. That’s why they charge high interest rates once the interest does kick in. They are just hoping that some of the balance will remain in order to make their interest. And if there isn’t it means they got their money back, and their risk is reduced to zero.

This is why credit cards have introductory rates, special promotions, and redeemable points. They are willing to lend out to 10 people hoping one keeps a lingering credit card balance.

That’s why strategic investors LOVE their credit cards. That’s why the rich get richer while the middle class keeps living paycheck to paycheck.

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

Share your thoughts......