Thursday, May 19, 2011
Going Into Debt To Get Out of Debt?
Apparently 'the rich' get rich by using debt as an investment tool (according to our 'Rich Dad' education). It's called leveraging other people's money; a concept that's hard to line up with our goals of being debt free...
We've leveraged borrowed money to purchase assets, and are further ahead than if we had saved. If we continue to reinvest cash (even instead of paying off debt), we may be further ahead in the long run assuming 'all goes well'.
Funny - using debt to acquire more income-producing assets is a great plan, unless something goes wrong. Maybe a poor decision, market conditions, ... maybe the asset implodes and loses all value. If it works out though, cashflow happens.
I can see how those billionaires may have to go through bankruptcy a few times to get over the hump.
I think either way - debt or no - has its benefits and risks.
The safe plan of using cash only and focusing on paying down debt is just that - safe. It's the tortoise in this race, steadily making its way to financial yields in the long term.
The debt-to-build-assets plan is higher risk, but may produce higher financial yields.
Guess which one I'm in favor of :)
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