Rise High Investor Weekly Video #35 Good debt versus bad debt

What Is Good Debt and Bad Debt?

Good debt: Anydebt used to buy income-producing assets that help grow your wealth—like investment properties. This type of debt is often tax-deductible, which is a great bonus. Essentially, it’s debt that works for you.

Bad debt: Anything that doesn’t generate income, such as your home loan, car loans, personal loans, credit cards, or a loan for a holiday home you don’t rent out. These types of debt don’t provide financial benefits and can hold you back from building wealth.

Managing Debt Through Different Stages

1. Acquisition Stage: It’s about maximizing good debt while reducing bad debt wherever possible. Work closely with your mortgage broker to structure loans effectively and keep your bad debt manageable as you acquire new properties.
2. Consolidation Stage: Interest-only loans can free up cash flow to help you tackle bad debt faster. Once bad debt is eliminated, start reducing good debt to improve cash flow and bring you closer to financial independence.
3. Debt Elimination Stage: This step increases the positive cash flow from your portfolio, giving you more financial freedom to support your lifestyle or invest further.

Staying Within Your Limits

While good debt can be beneficial, it’s essential not to overextend yourself. Only borrow what you’re comfortable with and ensure your debt levels don’t leave you feeling stressed or unable to sleep at night. Stick to your financial limits and make smart decisions.

The key to success is managing both types of debt strategically. Focus on reducing bad debt first, then tackle good debt when the time is right. Always know your limits, work with professionals to structure your finances, and make decisions that align with your goals.