Ask a person with overwhelming debt what his or her biggest
problem is and that person will invariably say, "Debt!"
Most people in that situation dream of living debt-free.
But is debt really the enemy?
It may interest you to realize that many of the wealthiest
people in the world actually have and regularly get into
debt.
I'm not talking about ditzy socialites or overpaid
celebrity types. I'm talking about self-made millionaires
and billionaires. The kind of people who started off poor
or average and amassed (and held onto) great wealth.
A famous novelist once said, "The rich are different." I
don't know about that, but I can say from some recent
observations that "The rich think different." Only I'd say
"differently" because it's grammatically more defensible.
Debt is not the evil end of life as we know it, if you
think about it in a different way.
First of all, if you're in overwhelming debt right now,
your debt is a disaster and you have to get rid of it. You
won't prosper until your debt dies.
But not all debt is like your debt. There is actually such
a thing as smart debt.
Rich people enter into smart debt all of the time. They do
it on purpose. They have an actual plan in mind. A smart
rich person doesn't just fall into debt like tripping over
a curb. He or she gets into debt mindfully and out of debt
on a timetable.
So what's so smart about their debt? Their debt is about
leverage.
A lever is one of the earliest forms of tools invented by
humans and it was designed to magnify or amplify human
strength. A guy with a lever could move something much
larger and heavier than a guy relying on brute strength
alone.
Most people without much money are like the guys without
the levers. We have only the power of what little cash we
have with us.
But let's think differently about money. Let's say you had
the opportunity to invest in something that you thought was
a great deal. You could invest your own money, selling
stocks or a home or gutting your retirement portfolio. Or
you could simply borrow the money (debt!), invest it, and
reap the reward.
You can do this already if you buy a house. Let's say you
find a house that you believe is undervalued. You want to
buy it, but it costs $250,000 and you don't have that kind
of money in the cookie jar. So you invest $25,000 of your
own and mortgage the rest. And let's say you're prepared to
keep the house for a year or so while you make renovations,
investing another $25,000 in upgrades. You're a savvy real
estate person and a year later, you put the house on the
market and walk away with $350,000. You pay off the
mortgage ($225,000) and the money you sunk into the place
($25,000 plus a year's worth of mortgage payments, say
$18,000) and your downpayment ($25,000) and you walk away
with $57,000.
See how that works?
Smart wealthy people see debt as a way to leverage money or
extend themselves without tying up their own capital. If
your own debt was about buying cars or vacations or clothes
you couldn't afford, that's not smart debt. You need to pay
that off and stop doing that kind of thing.
By the way, smart rich people also know that when you
invest money, serious risks are involved. They study those
risks, think about them, and make plans for them. And if
they get caught—and we all do, sooner or
later—they don't whine. They just go on.
----------------------------------------------------
Want to think some more about smart debt? Check out the
Smart Debt posting at
http://www.debconsolidationideas.wordpress.com . Jo Ann
LeQuang wrote this article and blogs at Debt Consolidation
Ideas. If you need to know more information about debt
consolidation from a site that sells no financial products
or services, check out
http://www.debt-consolidation-diva.com .
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