How to use debt smartly? Debt is the money that is borrowed. All loans are not equal and it’s important to choose the type of loan and lender wisely. Other than that, there are certain other tips to have an upper hand while taking debt.
Here are some points that can help you not shy away from debt, but at the same time to take care not to drown in it:
Choose the right debt instruments: Debt is known to be the new money now. The rich have known to use good debt or investor debt, but the poor generally pile up bad debt or consumer debt. For a smart entrepreneur, it’s important to understand this difference. Good debt is that which has lower interest rates and gives good returns for which student loans can be an example. Bad debt has high rate of interest and can be risky. Credit card can be an example for this, if not used properly it may put you in more trouble than gain with its high interest fees. Though nothing exactly can be classified as good debt or bad debt, it is important to select wisely a plan that rightly suits your needs. While venture debt is the norm now for established companies, startups can take help of structures such as convertible notes, KISS (Keep It Simple Securities) and SAFE (Simple Agreement for Future Equity). These eventually turn debt into equity that gives a good advantage for people to partner with you in the long run.
Accept the fact of risk and be prepared: Unce