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Finance Flash Go! Episode #57: Good Versus Bad Debt

Today on the Finance Flash Go! podcast, we wade in tricky water…discussing good versus bad debt!

Listen to the full episode and subscribe here!

Can debt be good? Or it all bad? These are important questions to ask.

A straw poll of most people would likely reveal an overwhelming majority who believe that all money owed is bad.

I wouldn’t be surprised to find that an even greater majority of physicians believe that all debt is bad. We spend so much of our lives under the burden of student loans. Physicians also notoriously use borrowed money to finance the lifestyle and gratification that they have delayed for so long.

good debt versus bad debt

So what is good debt?

I’ll borrow my definition from Robert Kiyosaki in his book, Cashflow Quadrant.

Debt is good if you are compensated or paid for taking it on.

You may be screaming at the computer or phone screen right now saying that this is not possible. When we borrow money, we have to pay interest on top of the principal. So, how the heck would we get compensated for the debts that we take on?

What is bad debt?

Well, it’s the inverse of good debt.

Therefore, it’s debt that you are not compensated or paid to take on. I would venture to guess that most of the debt that most physicians think of fall into this category.

You can use good debt to improve your ability to accrue income producing assets.

This is my favorite use of debt.

Let’s start with an example from my life. My wife and I bought a duplex for $174,500 using 25% down. Thus, we owed about $130,000 on the mortgage when we closed. We increased our debt by six figures!

But…that’s not where the story ends. Every month, our tenants pay rent. This rent covers our mortgage. It also covers all other expenses like taxes, insurance, and maintenance. There is also extra that we put (usually tax-free) into our pockets.

There is no better example of getting paid to take out debt than investing in cash-flowing real estate.

I don’t think anyone can argue that this is bad debt.

Related posts:
10 Reasons a Hybrid Investing Approach is Best
How to Find the Perfect Balance Between FIRE & YOLO
5 Easy Steps for Physicians Who Hate Personal Finance
Finance Flash Go! Episode #45: Small Cap vs. Mid Cap vs. Large Cap Stocks
My Stock Portfolio Is Better Than Your Financial Advisor’s
Stress Free Stock Market Investing Is Easier Than It Seems!
Important Money Lessons That I Learned From My Wife
Finance Flash Go! Episode #44: Understanding Growth vs. Value Stocks

I really hope that you all enjoy the Finance Flash Go podcast! We plan to release a new episode every weekday answering important finance questions. If you ever want to submit a question to our podcast, send an e-mail to [email protected].

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

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