That's right guys... I currently have over $500,000 of debt and I still decided to finance my Audi R8! From an outsider's perspective, I am what's called "Supercar Broke". In this video, I will explain the differences between GOOD DEBT and BAD DEBT. If used correctly, debt leverages your money and can put more money in your pockets. However, if it's used incorrectly, debt will put you in a financial hole that's impossible to climb out of!
Most of my debt comes from my mortgage. I used to have a 4% interest rate but recently refinanced this down to 2.4%. This means that I'm paying $2400 in interest each year for every $100,000 that I borrow. That's pretty low. I can easily make more money in the stock market that generates more than a 2.4% return. Furthermore, mortgage interest can be deducted on taxes which means my true interest rate is actually 1.8 - 2%. Mortgages are considered a good form of debt because the underlying asset(real estate) appreciates in the long-run. This means it's safe because if you hold it for a long time, you're guaranteed to make money.
Bad forms of debt are car loans, credit cards, and personal loans. Car loans are deceiving because of their low-interest rate. But the underlying asset(the car) is constantly depreciating. So even if you're getting a 0% interest rate car loan, you are still losing 10-30% a year on depreciation. This means car loans are a bad idea financially. However, if you are able to pay for a car in cash, then it means you can likely afford it. In these cases, it's ok to take out a loan since you can use the excess money for investing.
Avoid personal loans and credit cards. It's not uncommon for these to have a 10-20% interest rate. At that high of a rate, there is no reason to borrow money! Pay these back ASAP or better yet, never get into these types of debt in the first place!
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