After reading an article of John Chow about “Borrowing To Invest Vs. Saving To Invest”, it gave me an idea of how most of us are still not familiar with the kinds of debt that exists. Normal people who are afraid of having any kind of debt are scared to even have one. Especially when you talk about the interest rates, they definitely think that they are going to be eaten alive.

Basically, there are two kinds of debt, and to make it simple, there’s a Good Debt and a Bad Debt. Now what separates the good one from the bad? Or how do you know which one is which? Well, it is quite easy to know, just follow this simple rule: “Is the debt providing your pocket with money?”

If your answer was yes, congratulations, you have a Good Debt on your side. But if you answered no, then it would be best to start thinking of a way to finish off your debt as soon as possible.

What are examples of good debt?

A good example is an investment, you either loaned or borrowed money from the bank to start with. Knowing about leverage is an important tool to help you through an investment. It takes skills and working your math to know if you are going to profit or not. And also having an experience does provide an advantage. I would recommend that you do a thorough research on investments that you plan on entering, especially if you are just starting out. Risk is a factor to be considered, but should not be feared.

Opening up a business is one of the well-known good debt engines for business owners and investors. When you decide on opening your own business, you need capital to start with, and your source would be having a loan with the bank. Again, it is good debt because it will earn you money, as long as you know how to manage a business.

• With today’s technology, online businesses are even earning more than their offline or real-world counterparts. One very good reason for this is that most people are now adapting and using the internet in their daily lives. And as they continue to use them, they also find that it is more convenient and even faster to do real-time transactions with just a click of a mouse.

What about bad debt?

Well, these are common purchases of cars and houses and the money that you used was also loaned from the bank. And now, you have to pay your monthly mortgages for the fees and interest. You might say that a house is an investment, but if you go back to the simple rule that we have said, the house does not provide money in your pocket. Unless you are renting it out to other people, that’s the time the house becomes an investment.

I do hope that I have provided a good article for you to read, if you have any comments or suggestions, they are welcome and I’ll reply to them when I receive them.