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3 Reasons Why Entrepreneurs Have A Lot Of Debt But Are Rich?
Published on 21 Oct 2022
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3 Reasons Why Entrepreneurs Have A Lot Of Debt But Are Rich?
Amid the ease of debt today, some people may be allergic to the word debt, and even commit to not being in debt for life. The worry of not being able to live in peace is often the main reason a person avoids debt. Debt is not always a scourge. If used properly, debt can bring benefits and provide many benefits. Don't believe it? Why do you think many entrepreneurs have a lot of debt but are still rich?
3 Reasons Why Entrepreneurs Have A Lot Of Debt But Stay Rich
Most successful entrepreneurs build their businesses with debt. In contrast to most people who use debt for something consumptive, successful entrepreneurs use debt for positive activities aimed at making profits, such as borrowing for business capital.
The type of debt that rich entrepreneurs do is called productive debt. Then, what kind of productive debt keeps entrepreneurs with lots of debt still rich?
Getting Financial Benefits from Debt
Productive debt does not only make you borrow money for temporary benefits or satisfaction, such as borrowing to buy Eid clothes, buying gadgets, traveling abroad, and the like. More than that, productive debt will give you financial benefits or can be a source of income in the future.
Examples that are practiced by entrepreneurs are borrowing money for business activities which in the future will generate operating profits so that they can be used to pay off loans regularly, rotate businesses, to help with family finances.
Starting to see, right, the difference between productive debt and consumer debt?
Earning Debt Increases Assets
Someone with high consumer debt tends to find it difficult to own and add assets. This is because the money they have will be used up to pay off loans or even add new debt to pay off previous debts.
On the other hand, productive debt makes entrepreneurs richer because the debt they have will increase assets in the future. At the company level, the use of productive debt is intended for aspects that directly contribute to increasing the company's business profits.
Still related to the financial benefits discussed earlier, after these entrepreneurs repay the loan, their business will continue to run and even generate higher net profits because they no longer need to pay debt installments. This profit is used to increase personal assets and business assets.
Wise and Discipline Paying Debt Installments
As with the basic concept of debt, both consumer debt and productive debt require the commitment of each borrower to repay within the specified time limit. Therefore, discipline in paying installments is mandatory so that in the future you are not trapped in debt problems.
If at any time you are forced to shop using a credit card for business needs, then paying it off before maturity makes the loan you do classify as productive debt. As long as you can take into account the risks and ability to pay off debt, from a financial point of view you can still take on productive and consumptive debt.
Debt and Stay Rich Is Not Impossible
Based on the explanation above, now you know that getting rich through debt is a natural and reasonable thing. No wonder if despite a lot of debt, many entrepreneurs are successful and remain rich. You can also start following in their footsteps as long as you understand your financial goals and are wise in taking advantage of the debt you take, both productive and consumptive.
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