Here’s a bit of good news about borrowing money: not all debts are bad. There is also such a thing as good debt. You should learn to distinguish “good” from “bad” debt and take advantage of good debt whenever it is available.

Debt is basically money you borrow from other people. Good debt is using other people’s money to make you earn more money. Halimbawa, umutang ka ng pera sa bangko para gamiting puhunan sa isang magandang negosyo. Ginamit mo ang pera ng iba para kumita ka. Any borrowed money you use to earn more and improve your financial condition is considered as “good debt.”

On the other hand, “bad debt” is using other people’s money to make you lose more money (whether, intentionally or unintentionally). Isang magandang halimbawa ay ang paggamit ng credit card sa pagbili ng iyong pangtatlumpung pares ng sapatos. You charge P5,000 today to buy something that will only be worth P2,000 or less after 1 year. That, in effect, is the same as losing money. Bad debt is easy to identify – it takes away money from your pocket without a matching long-term financial benefit

Take note that good debt can turn out to be a bad debt and vice versa. Halimbawa, nag-avail ka ng real estate loan para bumili ng bahay at lupa sa isang subdivision sa probinsya pero di mo naman tinitirhan o pinapaupahan. Sa unang tingin mukhang magandang investment. However, if the value of the property doesn’t increase considerably in the next 5 to 10 years, this becomes a bad debt. Kasi natutulog ang pera mo, hindi lumalago at gumagastos ka pa sa maintenance at amilyar; palabas ang pera hindi papasok.

A car loan is generally a bad debt because a car will surely decrease in value over the years and it increases your expenses (for insurance, fuel & maintenance). Pero kung ang kotse ay ginagamit mo para mapalago ang iyong negosyo at malaki ang itinaas ng iyong kita, matatawag na natin ito na magandang utang.

You might find it hard to believe, but a credit card can also be a source of good debt. Halimbawa, kung ikaw ay may sari-sari store, i-charge mo sa credit card ang bibilhin na stocks na sa tingin mo mauubos sa loob ng 2-3 weeks. Bago pa dumating ang billing statement ng credit card, naibenta mo na lahat ng stocks at mababayaran mo ng buo ang iyong utang. You get to earn a profit without using your own money; plus you get rewards points. Now, that’s smart!

Financially smart people will take advantage of other people’s money to acquire such assets instead of relying only on their own resources. By using other people’s money you will accumulate more valuable assets in a shorter period. Siguraduhin mo lang na gagamitin mo sa tama ang hiniram na pera. Kung sa walang kwentang bagay ito mapupunta, hindi assets ang makokolekta mo kundi liabilities; nag-iipon ka ng utang!

Last update: september 8, 2008
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