Good debt vs Bad debt

From an article in our local newspaper -
"Interest rates come to 3 per cent to 4 per cent for housing loans, about 6 per cent for car loans and about 8 per cent for renovation loans. You pay about 20 per cent for GE Money EzyCash and 24 per cent for credit cards"

"Instead of using his savings to pay off his housing loan as quickly as possible, he channels his cash into higher-yielding investments such as shares, land banking and traded endowment plans."

In this comparison, it would seem that taking on loans for housing is considered to be BETTER. But is it?

I will NOT disagree with this person's financial strategy, but this is NOT a strategy for anyone who does NOT understand debt.

Why?

Debt whether good or bad depends on whether you can afford it. A good debt taken at valuations that is not reasonable will lead to trouble, no matter how good or bad.

I've come to know of properties bought during the 1998-99. It was purchased at $820,000 and now almost 10 years later the property valuations are still languishing at least $100,000 BELOW when it was purchased.

Now in the year 2007, people are bullish again and feeling "proud" of their investment strategy in properties.

My personal advice? There is NO FIX STRATEGY or a blanket "sure win" way to wealth and financial freedom.

There is NO GOOD DEBT.

But there are debt that you HAVE to take, like an affordable mortgage. Or a student loan, maybe even a debt to pay off another debt (transfer balance)..etc.

At the end of the day, having no debt is better than having debt.

In general a mortgage for a property is cheaper than say, a credit card debt, but does that mean you got to "max out" the loan available to you? No!

So, remember, "good" is relative.

Cheerio!