Take these loans without feeling guilty!

If you have some kind of loan on your head and feel stressed about it, let me tell you why you shouldn’t worry.

Now this post may agitate a few readers, but hear me out - some loans are good for you and some are bad. And today, we’ll talk about both.

(Before we begin, towards the end of this post, I need a small favour from you guys which will mean a lot to me, so please read through till the end!)

Now, let’s talk about loans. We’ll call it “debt” going forward, since some of them may not be pure loans - you’ll understand as you read through 🙂

Good debt

Any kind of debt that:

1. Increases your net worth

2. Helps you manage your finances more efficiently

3. Helps you build assets

4. Contributes to your well-being

is a Good Debt. Let’s look at some examples:

1. Home loan → Helps you build an asset, increases your net worth in the long run

2. Education loan → Helps you get a degree that increases your knowledge, well-being and will eventually help increase your net worth

3. Business loan (provided you can repay it) → Helps you grow your business and increase your net worth

Such kind of debt helps you take a step in the right direction, so you shouldn’t worry much about taking them, since in the long run, they’re good. Of course this doesn’t mean you spend half of your monthly income paying EMIs. Stick to the basic ground rules of keeping EMI below 20-30%, even while taking on good debt.

But there’s another category of debt, which isn’t good to take. Let’s look at it.

Bad Debt

Any kind of debt that:

1. Does not increase your net worth

2. Purchases a depreciating asset

3. Is taken to purchase something that you just can’t afford

is Bad Debt.

Here are some examples:

1. Loans taken to buy depreciating assets (eg: expensive gadgets)

2. Credit card debt where you have to pay interest (i.e you’re not paying dues on time)

These loans add to your financial stress and don’t help you in any way in the long run.

Exceptions

But there are certain exceptions to the above:

1. Credit cards: They’re not bad as such. In fact if used well, they’re actually good. The problem starts when you start paying the minimum amount due, or frequently convert transactions to EMI and end up paying high interest. THAT becomes bad debt

2. Expensive gadgets if used for something that increases your net worth. For example, I bought an iPhone this year on EMI - my most expensive phone ever. But I don’t have one bit of guilt for it, since it’s an investment - I purchased it to shoot videos for YouTube - for the business

Even with such exceptions, you need to be careful so that they don’t become an everyday affair.

All said and done, in order to manage your finances well, you need to be able to understand what kind of debt is good and what kind is bad. Why don’t you comment or write back to me and tell me other kinds of good debt that you feel can be taken?

Now, I need your help!

If you’ve been a reader of our newsletter, and have liked it so far, I would need a small favour from you.

We’re coming up with 2 new investment products soon (🤞), and would like to understand user behaviour before we actually launch. Since you guys are a part of our trusted community, who better than you to understand this from?

So if it’s okay, I’d like to ask for 15 minutes of your time in the coming week so that we can get on a quick call with you and understand whether what we’re building is on the right track. If you would be kind enough to give me those 15 minutes, please click HERE and tell me when. It would mean a lot to me!

See you next week! 🙂