GOOD DEBT VERSUS BAD DEBT
Following the advice of Ram ,bheema agrees to himself enroll in financial education class. As he prepares himself he faces hurdles at his very first step that he doesn't have money to pay for the financial class,being a person of egoistic there was no room for aid.On the other hand he was reluctant to get loan from anyone or bank possessing fear of how he is going to pay back.Ram understands his situation and explains to him the distinct between good debt and bad debt.
Ram: If you are ready to listen, I have a solution for this problem.
Bheema: Oh! is it so?
Ram: Yes,but before I reveal the solution know the difference between good debt and bad debt.
Bheema: what is it both are same.
Ram: No,If you utilize your debt to purchase an asset and pay back the loan with interest by the cash flow generated by the particular asset it is good debt.Bad debt is if you purchase a liability may be car and spend money on petrol and paying back interest that is bad debt.
Bheema: It sounds like a rhythm, you are joking.
Ram: No,I am serious.
Bheema: Unable to understand what you are saying.
Ram: I will explain in your way of understanding....
Bheema: Explain now.
Ram: Suppose you purchase a car,as you are in dearth of money using the debt you have purchased the car,later you spend money on petrol,maintenance,EMI (car loan) which burns your pocket with no gains.This is bad debt.
BHEEMA: Wonderful Ram you are genius!
LESSON LEARNED:
Following the advice of Ram ,bheema agrees to himself enroll in financial education class. As he prepares himself he faces hurdles at his very first step that he doesn't have money to pay for the financial class,being a person of egoistic there was no room for aid.On the other hand he was reluctant to get loan from anyone or bank possessing fear of how he is going to pay back.Ram understands his situation and explains to him the distinct between good debt and bad debt.
Ram: If you are ready to listen, I have a solution for this problem.
Bheema: Oh! is it so?
Ram: Yes,but before I reveal the solution know the difference between good debt and bad debt.
Bheema: what is it both are same.
Ram: No,If you utilize your debt to purchase an asset and pay back the loan with interest by the cash flow generated by the particular asset it is good debt.Bad debt is if you purchase a liability may be car and spend money on petrol and paying back interest that is bad debt.
Bheema: It sounds like a rhythm, you are joking.
Ram: No,I am serious.
Bheema: Unable to understand what you are saying.
Ram: I will explain in your way of understanding....
Bheema: Explain now.
Ram: Suppose you purchase a car,as you are in dearth of money using the debt you have purchased the car,later you spend money on petrol,maintenance,EMI (car loan) which burns your pocket with no gains.This is bad debt.
Consider Financial education as example you pay the debt as your fees later you will be learning about the management and Investment of money,Implementing the knowledge on your money the gains makes you to pay your loan quickly further the returns from Investment is your profit.
Eg. 1.You Invest in Mutual funds(with knowledge)
2.Returns pay your loan
3. Further returns is gains
This is good debt.
BHEEMA: Wonderful Ram you are genius!
RAM: Stop praising,focus on your classes
BHEEMA:😡😡😡😡😡😡
NOT ALL DEBTS ARE BAD
GOOD DEBTS BUY ASSETS BAD DEBTS BUY LIBALITIES
