“I have a lot of good debt.”
Many view debt as a bad thing, but when used properly, it can get you closer to your financial goals. Real Estate Investors and Financial Influencers Graham Stephen Recently, I explained his method in an interview Use debt to build wealth.
“I have a lot of debt,” he said in the conversation.
He expanded the meaning of having good debt and bad debt. The advantage of getting into debt can outweigh the setback if you know how to use it correctly.
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Stephen defines good debt as a financial obligation that allows you to make more money than you spend. If you pay $3,000 per month of housing expenses for rental and collect $3,500 per month in cash flow, you’ll have delicious debt.
Some real estate investors may argue that assets that generate slightly negative cash flows are also good investments as they are building stocks. You can also raise prices over time to make future cash flows positive.
This type of debt helps you build wealth faster than if you were operating without debt. Good debt allows you to increase your money and use other people’s money to improve your finances.
Stephen explains that borrowing money at 10% APR for business and getting a 50% ROI with the money borrowed, he is using his debt productively. Stephan offers many examples of revolving around knowing interest rates and generating revenues higher than interest rates.
When you think about it as a percentage, it is easier to distinguish between good debt and bad debt. For example, credit cards are a well-known example of bad debts. Consumers often end up in credit card debt by making unnecessary purchases and earning high interest rates in the process.
If you need to borrow money for business expenses, it is best to avoid high credit card balances. Most credit card APRs range from 19% to 29%, depending on your creditworthiness and other factors.
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Stefan also states that if a car that generates a 10% return has a 6% interest rate, since it is used for business, it can be treated as a good debt. However, the car has additional perks. If the car is a business expense and is eligible, you can deduct some of the value of the car from your taxable income in the first year.