Is Debt Ever Ok?
June 22nd, 2006 by jhampton
Debt, as you know, is the opposite of wealth building. Of course the less debt you have, the better you are. There are times though that you could take advantage of indebtedness.
For instance, if you have a mortgage, that debt is not too horrid, especially if you have a good interest rate. The truth is that even if you had the cash to pay off some debt, it may be better to put that cash to use in a different way.
If you invest that money into something with a strong return, you could see a better return than the interest you are paying on the loan. This was recently stated in a Motley Fool article.
If you’re bullish about a stock or
two — and are fairly sure that, over the next five years or so, you’ll
earn at least 15% on them per year, on average — then you might choose
to keep the loan and pay it off gradually, as you originally planned.
You might take the $5,000 and invest it. If the stocks perform as
expected, you’ll be earning more than you’re paying out in interest.
Even if they only return 10% per year, on average, you’ll come out
ahead — because you intelligently built in a margin of safety.
two — and are fairly sure that, over the next five years or so, you’ll
earn at least 15% on them per year, on average — then you might choose
to keep the loan and pay it off gradually, as you originally planned.
You might take the $5,000 and invest it. If the stocks perform as
expected, you’ll be earning more than you’re paying out in interest.
Even if they only return 10% per year, on average, you’ll come out
ahead — because you intelligently built in a margin of safety.
Don’t just pay off all the debt unless it is over bearing. Get a wealth coach in your corner today and build wealth wisely.
Relevant Tags: debt reduction, investment strategies, motley fool, wealth building, wise investingPosted on Thursday, June 22nd, 2006 at 12:49 pm In Debt Elimination