Business essay # 7
There are two types of debt. One type of debt is debt that you use for a business, a piece of land, or a house. This type of debt is debt on things that don’t deprecate in value. Debt like this can be a useful tool, but like all debt you should strive to pay it off as fast as possible. The other type of debt is called consumer debt. This is debt on consumer goods like cars, TVs, and just about anything else that deprecates in value.
Consumer debt is something to avoid. You shouldn’t buy anything that becomes less valuable after you buy it with debt. Consumer debt usually has a high interest rate on it, so you could end up pay a lot more money for something than it originally cost. Not to mention the value of that thing you bought is falling all the time.
All debt should be avoided but you should especially stay clear of consumer debt. You can’t make money by investing or starting a business if you are deep in debt. The reason that you can’t is that the interest rate of credit cards is so high, you won’t be able to make your money back at the same rate as the interest on your debt.
So why do so many people use debt to by cars and other consumer goods? It is because people aren’t future oriented. They live in the moment and don’t think about the consequences that might result from there actions. Warren Buffit, who is a very rich investor, said that his number one piece of advice on finances is to avoid credit cards.
I will avoid debt, and I will strive to be a more future oriented person.