Good debt” versus “bad debt
Not all debt is created equal… the difference lies in how it helps – or hurts – your pursuit of your financial goals.
Some debt can be seen as an investment in one’s future:
• Borrowing money to maximize your RRSP contributions.
• Loans with tax-deductible interest to earn investment income.
• Borrowing to acquire an asset that may increase in value, such as your home or a rental property.
• Student loans that enable you to get an education leading to a good career.
However, other types of debt can act as a fiscal drag, limiting future opportunities:
• Revolving consumer debt with high rates of interest, such as maintaining balances on credit cards or department store cards.
• Buying something that will depreciate using borrowed funds.
• Cash advances on your credit card. Interest is charged right from the date of your advance.
• Making deferred consumer purchases (i.e. “do not pay until 2012”) where the cost of the item includes financing charges
Nevin Van Nest . Realtor . Royal LePage Foothills
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