In: Finance
Identify and analyze your debts. What assets secure your debts? What assets do your debts finance? What is the cost of your debts? What determined those costs? What risks do you undertake by being in debt? How can being in debt help you build wealth?
Presently, I have the following debt
Debt Type | Debt outstanding | Interest rate | Tenure (years) |
Student loan | $40,000 | 4.50% | 10 |
Car loan | $20,000 | 4.00% | 5 |
The assets which secure the debts are the car for the car loan and my car which is currently valued at ~ $20,000. For the student loan, the collateral is guarantee provided by my father against his net worth.
The assets financed by dent are the car and my college education. The cost of the debts are determined by the tenure of the debt and also the collateral which is available to secure the debt.
The risks that I undertake by being in debt are:-
Being in debt is counterproductive for the creation of wealth as this works as negative compounding with the bank earning interest at our expense instead of us investing and earning interest.