With trillions of dollars in consumer debt in the U.S., you might be ready to make some money investing by racking up your own debt. You may have thought about borrowing money to invest, but wondered if that makes sense.
Some people use debt to invest, but all situations are not created equal. We want to help you understand when it’s a good time to borrow to invest, and when you should focus on paying down debt.
Continue reading this article to learn more about using debt to make money.
Understanding the Difference Between Good and Bad Debt
Many people don’t understand the difference between good and bad debt, and a lot of it has to do with personal opinion. There is a general consensus by some of the top financial minds, and we are going to use their thoughts to define good and bad debt.
Good debt is a debt you use to better your quality of life without paying high interest. You use this debt to invest in something that is going to bring you returns over the long run.
Bad debt is a debt you use to buy things like fast food, designer clothes, and things that aren’t going to go up in value.
Examples of When Borrowing to Invest May Make Sense
If you see a good opportunity to buy a vehicle that is worth $5,000, but someone is selling it for $2,000, this might be a good time to borrow money to flip the car. You could start by finding title loans to get the money you need, and paying it back as soon as you sell the car.
Another example is that you find a piece of jewelry at a pawn shop that is worth more than what they are asking for it. You might choose to borrow money to buy it and sell it to a collector for more money.
Examples of When Borrowing to Invest Usually Doesn’t Make Sense
Even though Warren Buffett made a great deal of his money through leverage, that doesn’t mean it is a good idea for you. It’s safe to say that Buffett has the magic touch, and you may not.
Borrowing money to invest in stocks can be very dangerous. Stock can go down by 10%, 20%, and even more, % depending on what is happening in the market.
You also shouldn’t try to borrow from companies charging high interest when you’re going to have to wait a long time for the return on your investments. The high interest you’re going to pay is going to eat a lot of your profits.
Being Smart About Borrowing Money to Invest
Now you know more about borrowing money to invest, and when it makes sense. You can start being smart with money and make sure you’re wealth is growing.
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Newly middle-aged wife of 1, Mom of 3, Grandma of 2. A professional blogger who has lived in 3 places since losing her home to a house fire in October 2018 with her husband. Becky appreciates being self-employed which has allowed her to work from 'anywhere'. Life is better when you can laugh. As you can tell by her Facebook page where she keeps the humor memes going daily. Becky looks forward to the upcoming new year. It will be fun to see what 2020 holds.