Thread by @Gautaamm

One of the biggest cons the western financial system has created is this concept of "good debt".

Basically "Good debt is considered to be debt if it helps you get a job, like a student loan, or helps you earn money, like a business loan.

"Bad debt" is all other debt, but

basically personal loans, credit card debt etc. Home loans can be considered essential, but with care.

The reality is that there is NOTHING like "good debt". I say that because it plays on people's minds to throw caution to the wind and borrow recklessly because apparently you

are going to make money of that and become rich right?

WRONG!

I used to use the terms "Essential debt" and "Criminal debt", again with Home loans being in no man's land.

"Criminal debt" is that debt which you take on for pleasure/addiction etc.

Credit card debt defined as balance left over past the due date of the billing cycle. Personal loans, from the bank or friends and family, for vacations, gadgets like home theatres etc, are in the same category.

This is strictly to be avoided. NO matter what.

Now we come to "essential debt". Education has become exorbitantly expensive these days. Indian parents still have trouble addressing it as an investment and consider it essential. Without calculating the "ROI" on it because it's "Education".

That's not true any more.

Regardless of whether the fees are being paid for by parents or with a loan, education needs to be carefully analyzed for what sort of a career can be expected once the course is over.

When I was in school, virtually everyone got aid for their Masters in the US. May be the

student went there without aid, but 99.99% of them got it within the first semester.

These days, it is rare for aid at the master's level. So parents out up their homes as collateral and take out a student loan. If the student is unable to get a well paying job, that puts

enormous strain on the child and the parents. Specially with the insane interest rates in India.

So while the bank might term is "good debt", lack of adequate research will quickly turn it into "bad debt".

The same goes for business loans.

Business owners, large and small,

take on enormous debts these days. Either as an actual loan, or via VC funding, which mandates a certain amount of monthly pay out from the business.

Often the projections are grossly exaggerated and the targets are never met. Which leads to catastrophic outcomes.

Toys-R-US

is the perfect example. Everyone was quick to blame Amazon for it's demise The reality was far different. A friend of mine who is into institutional lending, like the type they had taken on, explained to me that Toys-R-Us was crumbling under the pressure of paying the

monthly target to the VCs which left them with no money for upgrades of the stores, unable to hire adequate employees to serve the stores and operating on a very tight budget.

Eventually they went bankrupt.

I believe Zee met with a similar fate recently for taking on debt

to operate in a territory far removed from their core skills.

Healthcare in the US is more of a business today than ever and a lot of practice are having to do a fire sale to corporate systems because they just cannot break even. Again the main reason being the reimbursement.

I urge the young generation in India to be very very careful. My grandparents generation viewed debt as criminal. All kinds. I know it's impossible to start/take over a business or study abroad without financial assistance privately or from banks. But given the amounts involved,

the due diligence needs to be very thorough.

I see a tremendous increase in the comfort level with which youngsters are taking on debt. Apparently credit card debt is more common than anyone can imagine.

Such a system cannot work. You will pay the price. If not you, your

next of kin surely will.

Home and car loans are very tricky. It is rare for am employed individual or a small business owner to do anything without a loan. But the amounts are worrying. Please please borrow as little as possible and operate on a very lean budget. Make repaying

the loans top priority!

Car loans come in the same category. If there is a loan, go for a category one or two levels below your desired choice.

It will only come back to haunt you.

I am no financial expert. But I have seen the damage crushing debt does to

the health of friends and families. It's NOT good.

Please say it yourself everyday.

THERE IS NOTHING LIKE "GOOD DEBT"

Period!

#debt #gooddebt #baddebt #Studentloans #businessloans #creditcards

CC: @monikahalan @sumitakale @CafeEconomics