About us | Contact us | Careers | Affiliates | Become a Member | Feedback

Tuesday, October 24, 2017, 10:07:15 AM EST
   Become a Member    |    Retrieve Password
                      Member Email:         Password:             
HOME | MY LOAN SELECTOR | MY CALCULATOR | MY REALESTATE | MY LEASING | MY PROPERTY REPORTS | MY PROPERTY DEPRECIATION | MY MONEY | MY NEWS TV

GOOD DEBT Vs BAD DEBT!

For most people it would be almost impossible to purchase a house or investment property without borrowing money.

Once you borrow the money it is important to learn to manage the debt as efficiently as possible. Borrowed money should only be used by purchasing assets that grow in value over time, these are called appreciating assets.

Ideally the asset should produce an income, give you tax deductions to help you repay the loan over time. The type of debt you use could help you become wealthy or it could mark the beginning of your down fall!

Debt comes into two forms: Good Debt and Bad Debt. It is also referred to as Efficient Debt and Inefficient Debt.

The table below highlights the main characteristics of debt:

GOOD DEBTBAD DEBT
Typical monthly loan repayments paid by you 10% to 15% Typical monthly loan repayments paid by you 100%
Tax DeductibleNon Tax Deductible
Fully DepreciableNon Depreciable
Rental IncomeNo Rental Income
Tax RebateNo Tax Rebate
Paid From Your Gross WagesPaid From Your Net Wages
Working Smarter Not HarderWorking Harder Not Smarter

Understanding the “Bad” and “Good” debt concept is very important as our society has been conditioned into being great consumers of credit, many of us are very much entrenched in the clutches of bad debt (in other words consumer debt) debt used to finance consumption is fundamentally bad debt:

  • Motor Vehicle Loans
  • Home Loans (your home will grow over time however, the interest and expenses are not tax deductible)
  • Furniture Credit
  • Credit Cards
  • Clothes Credit
  • Entertainment Credit
  • Restaurants Credit
  • Holidays Credit

Bad Debt: Is expensive, carries high interest rates and is unproductive as it does not produce income. The accumulation of bad debt diminishes your disposable income hence, actually limits your borrowing power for a home or investment property loan (for example, if you have a credit card with a limit of $10 000 your disposable income required to service the card will diminish your property borrowing power by at least $50 000). See How Much Can I Borrow calculator.

Good Debt: Has a financial purpose. It is used to purchase income producing assets that will enhance your financial position.

  • Investment Property
  • Share Portfolio

These investments are income producing and the borrowing costs and expenses may also be tax deductible.


Members
Member Log in
Affiliate Log in
Become a Member
Refer a Friend
Home Loans
Member Benefits
 
Essential Tools
Myhome Loan Type Guide
Car Leasing Guide
Property Valuation Reports
I-Quote-Get a life insurance quote
Myhome Loan Selector
Debt Management Assistant
Home Loan Packages
Buy Property Reports
FHOG Claim Forms
 
Finance Calculators
Negative Gearing Tax Calculator
Daily Income Split Calculator
Income Tax Calculator
Salary Distribution Calculator
Home Equity Calculator
Car Repayment Calculator
Home Loan Repayment Calculator
How Much Can I Borrow?
More Calculators
 
My Resources
Credit Capacity Reports
Property Analysis Reports
Credit Advice To Professionals
Property Buying Service
Business Finance Guide
Business Directory
Property Valuation Reports
Retailers E-payment Portal
Ezzybuyportal
 
FRG Group Partners
Mybank.com.au
Birkenhead Point Real Estate
Rainbow Digital Media
Medicaid Finance

FRG Group Partners:

Advertise with us / Privacy Policy / Disclaimers / Affiliates / Contact us / About us / Careers / Legal / Become A Member / Feedback

Copyright © 2004 - 2017 Mybank Systems Australia. All Rights Reserved