No matter where you go, people talk about the ills of having debt; everyone suddenly becomes a finance expert and labels debt as bad. It makes many of us wary of taking a loan even in cases where we need it the most. However you will be happy to note that not all debt is bad; in fact there’s something called positive debt that you need to know about. Having debt is not always a bad thing and it certainly doesn’t affect your personal net worth negatively in all instances.
Your net worth is calculated after adding all your assets and subtracting your liabilities from it. Imagine a scenario where you don’t have any assets or liabilities and you get a loan from a bank. Now this debt will not affect your net worth, which will stay constant at zero. But you will have the loan amount in your bank account, which will be a respite and there are so many constructive ways of using it to make it count. That’s what many have done to great effect and you can do the same by investing debt.
Now you would like to know how your debt can have a positive impact on your net worth. The strategy is rather simple; you pay a certain interest rate for the loan you have taken and if you leave the amount sitting in your bank account, your net worth will be in the negative. But if you invest a loan in a place where you make more money than the interest rate you are paying on it; then your net worth will be in the positive. There are many who consider what the impact of their debt can have before taking a loan and determine to make a wise move before hand.
Calling all debt bad doesn’t make sense simply because it’s not true. Positive debt exists and has been used smartly by many investors who have made substantial gains through it. Using your debt smartly is the key factor here and you need to estimate how you can benefit from a loan when it comes to your net worth. For example, if you invest in a car that will make it easier for you to ply your business or get to work without having to spend exorbitant commuting charges, you would have made the right decision.
There are a few simple things you need to bear in mind that will answer your queries about how to use a loan. If you want to use it in financing, then investments are the only way that your net worth can be affected positively. Using your loan amount on anything that can be consumed instantly; vacations for example is a strict no-no. Consumer purchases like buying a TV or iPad will only affect your net worth negatively because they depreciate in value. Thus investing your loan into them is not the right choice. You can explore your options when it comes to financial investments and make your debt pay for itself and a whole lot more.