Is Debt Good or Bad?
Credit Card debt at 2.5% per month is sheer madness
Wait. Not always
If you take a credit card loan to buy yourself an international airline ticket to Singapore. If it is going to Singapore for a holiday, then the credit card debt is a very bad idea. However, if it is to attend a job interview then it may in fact be a very good idea. Because let's say you are very eligible for the job, it is a very high paying job with an awesome future prospect. The cash flows from the job will make the cost of borrowing look minuscule.
This is a case of bet hedging because you have take a loan to tide over a harsh situation (not having money to buy the air ticket). Because without tiding over the harsh situation the opportunity loss would be enormous.
In simple to understand Hindi language, we also call it the Baazigar Strategy - हार कर जीतने वालों को बाज़ीगर कहते है.
Debt is a powerful money management tool that needs to be used mindfully.
Cost of Debt Capital when borrowed from banks is less and much lower than cost of Equity Capital. So if you have confidence in your decision and are sure of future success, then debt is no longer a cost but just a hedge for your bet (bet hedging).
Disclaimer : This Article is only for information Purpose and should not be treated as Financial Advice.
Comments