Good Debt vs Bad Debt

Here's a good article: All Debt is Not Created Equal.

Here's how I summarize it.

There is good debt and then there is bad debt. In the case of good debt, a business person adds more debt. But as a result of doing so, that debt provides him enough income to pay for the debt, plus still generate a profit. This is good debt. On the other hand, bad debt is where someone acquires the debt but has no additional income. That is really bad debt.

Now let's look at government spending. They spend money on defense, firemen, ethanol subsidies, roads, bridges, salaries, benefits, posts offices, green energy projects, bailouts, parks, regulations, EPA, Department of Education, and tons of other things. Some if it may be needed some not. Even if it is needed, the problem with government debt to finance government spending is that, governement spending is not productive. That is, it adds no income. All it adds is bad debt.

To me good spending is one that adds money to your pocket this month. So if you go into debt, the income you get better be enough to pay your debt service payments and stillget a profit on a monthly basis. If it does not, then it is bad spending.

Comments

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Just went through these thoughts you wrote. They are most appealing and constructive. I like how you put them into outlook.