June 5, 2012
When debt pops into your mind, it's often followed by a frown. However, one expert feels debt can be lucrative. According to financial planner Ike Ikokwu, not all debt is bad, and just as we've learned to embrace good fats or good cholesterol, there is also something to be said for good debt.
"Debt has always been the catalyst to bring dreams into reality," said Ikokwu, a financial planner and author of the book "Winning the Money Game: Everything You Don't Know About Achieving Financial Independence." "We have so many blind spots with debt, so people need to be more proactive."
Ikokwu said one of the biggest debts worth keeping is your mortgage.
"There is this huge misconception that paying off your mortgage will give you security but this is totally false," he said. "Your home is not only a lousy investment, it shouldn't be your biggest investment. It's one of the riskiest assets you have because of the deterioration of the housing market. Get a 30-year fixed mortgage and take any money you were going to use to pay off the mortgage and invest it elsewhere."
To embrace the debt in your life, Ikokwu said it's important to realize the three most common ways people get rich involving debt.
Launching a business.
"Whether it's the guy who started an idea in his garage and then it took off, or someone who had that big idea and finally got the business plan together to get things moving, any business person has had to utilize debt to grow their business," he said. "This is an example of good debt — when you're spending money to make money."
Investing in real estate.
Ikokwu said while investing all of your money in one home isn't smart because of the questionable housing market, investing in several properties while the prices are so low will pay off in the long run.
"You don't have to be Donald Trump to know there are opportunities to use debt wisely with buying properties," he said. "And getting loans seems very intimidating to people, but what they don't realize is, as long as you have decent credit, you can get loans for up to three or four properties — anything beyond that you'll need a full-blown business plan. It doesn't mean you will make a quick buck by flipping it in 30 days, but there are properties that are being sold for 50 percent of their worth. If you held onto these for as long as you'd have a stock investment, you would have a pretty decent smile on your face."
Get an advanced degree.
"A realistic way to become a high income earner is to get advanced degrees," he said. "Become an expert in a field or get an advanced masters in business, law, medicine — something where you can get close to six figures early on in your career. The position you will acquire will pay off the debt and this puts you in the position to have excess cash flow after a couple of years."
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