Investors manage mortal and immortal debt. They do that by using different rules for good or bad debt. By doing that they create wealth-building opportunities. And any investor can learn and apply these debt management rules of superior investors.
What you learn:
Investors manage mortal and immortal debt includes:
Frequently asked questions about debt management:
Investors ask questions about the types of debt and debt management.
What is the difference between mortal and immortal debt?
Mortal debt is a personal obligation that remains until it is paid or settled after death.
On the other hand, governments and long-lived institutions can make debt immortal by manipulating and recycling it indefinitely.
As a result, personal borrowers and public debt managers follow different rules; however, immortal debt managers are subject to the complications of political and social pressure.
What are good and bad debts?
Debt can build or consume wealth, benefiting or harming your financial future. Using debt to improve health, safety, or education helps you build long-term prosperity and a better quality of life.
But any debt to buy things depreciating or declining in value or for daily expenses limits wealth-building and security. That causes financial harm that includes giving finance companies control over your future well-being!
Improve your life by only using debt to buy investments that grow long-term prosperity, boost income, or build wealth.
What is the difference between public and private debt?
Public debt owed by governments or their agencies is immortal or eternal.
That immortal or everlasting tag is applied because governments live longer than human lifetimes. Like corporations, governments can live for generations and have the option of rolling debt over forever!
On the other hand, private or mortal debt holders must repay their debts within their lifetime.
Lenders generally charge lower fees and interest rates to immortal debtors because their debt management options make them less risky to lend to.
What does debt management mean?
Debt management requires wealth builders to create and manage a plan to control and eliminate debt.
The plan begins with analyzing all debts and the resources available to deal with them. Then, create a budget and the short- and long-term actions necessary to manage and effectively eliminate debt.
The plan must consider interest rates and repayment terms and detail the actions needed to reduce and eliminate debt. That can include negotiating to lower interest rates, adjusting or extending repayment terms, accelerating forgiveness, and determining if the debt is secured or unsecured.
How much debt is considered bad?
Any debt used to buy consumption, assets, or services that do not produce income or increase value is bad debt. And, the rule of thumb, high debt is any that exceeds 40% of revenue, but lower is better.
Debt payments of up to one-third of income cash flow are generally manageable. However, the higher the payments, the higher the risk. Take high payments as a cautionary warning that debt issues could be ahead!
What are the debt management principles?
Ask White Top Investor: What are the debt management principles?
Manage and eliminate debts with these well-established debt management steps,
Step 1: Know each debt amount, interest rate, terms, and due date.
Step 2: Create a detailed budget and repayment schedule.
Step 3: Prioritize paying high-interest debts first.
Step 4: Negotiate lower interest rates, easy repayments, or forgiveness.
Step 5: Only use debt to buy appreciating or income-increasing assets.
Once you create a debt management plan, diligently stick to it.
Investors know the debt mix
Mortal or immortal debt, good debt or bad debt, public or private debt all get in the complex mix of debt investors must deal with and understand. As noted in the above FAQ, the mix of those debts can make debt management complex. But, it can be managed by taking it a step at a time. That way you can follow a straightforward debt management process. That process helps you understand and keep debt under control. Doing debt management well can make it into a wealth building contributor.
Step-by-step debt management
Successful investors manage debt well. They use a series of well-established small steps to do that. And understanding debt management principles helps them succeed doing that. Following is a simple debt management outline.
1. Begin by knowing and understanding the details of each and every debt. Make a written list that gives the following details for each debt,
a. Amount owed and who you owe it to.
b. Interest rate.
c. Repayment terms.
d. Due date.
2. Next, write a master budget plan with repayment schedule details for each debt.
3, Third, rank each debt so you pay off those with high interest rates and fees first.
4. Fourth, use this very powerful strategy, contact and meet with each person or organization you owe. Ask for better terms. This can produce amazing results! It often lowers your debt total which brings considerable relief. Negotiate the following,
a. Seek debt relief and better terms that are often given to anyone that asks!
b. Ask for a lower interest rate. This can mean faster repayment.
c. Ask if you can get a more favorable payment schedule.
5. Last, make a rule that debt must only be used to buy more income or an appreciating asset. Never use debt for consumption or to buy any asset that will fall in value.
Mortal and Immortal Debt Follows Different Rules
Mortals see immortal debt and benefit from immortal debt, but each follows different rules. We pay debt obligations, but immortals can carry debt forever! In addition, the debt financing rules also differ for mortals and immortals.
As Mortals, We Pay Our Debts And Theirs!
We mortals have a finite lifetime, now fast approaching a 90-year average. Still, there is an end date and before we are gone, we expect to pay any debt. Typically, debt gets paid well before we reach our personal best before date. If not, liquidating assets after we are gone most often can satisfy any remaining obligations.
Anyone wanting to build wealth, financial security, and retirement independence, must deal with debt. First, we must have a plan that includes paying off any debt.
Before we receive a loan, mortgage, or any form of financing, we accept the obligation to pay the money back. During our lives, we mortals can use debt in many useful ways. But always, we must manage it and repay it within our lifespan.
Although we can’t carry debt forever, in contrast, immortals can! And we mortals also must pay to carry the debt of immortals!
Debt Plans Differ For Immortals
Immortals are large corporations or governments of any size from our local village to the largest, richest nation. Immortals are legally structured for an indefinite lifespan! That unending life is the significant key to the debt management possibilities for immortals.
Powerful enterprises and nations expect and behave as if they will live forever. And their lenders go along with that expectation! That allows immortals to use and manage debt in ways mortals can not.
3 Ways Lenders See Immortal Value And Security
- Real assets owned or controlled by financial immortals
- Real cash flow financial immortals can use (taxes or income)
- Full trust and faith that a financial immortal can and will pay (fiat currency, junk bonds)
When lenders see the value and security of the financially immortal, immortal debt can become reality. A debt of all sorts held by financial immortals can then be perpetually rolled over or replaced, making real repayment terms extend forever with a due date of never!
Mortals Can See Immortal Debt Costs And Benefits Go Forever
Rolling debt forward year after year, generation after generation makes such debt seemingly immortal. Very long lifespan organizations such as governments and large corporations can refinance debt again and again. That endless financing lets immortals use operating strategies well beyond what a mortal can do.
Costs of carrying immortal debt continue indefinitely. Still, society can benefit from immortal debt. For example, developing useful new infrastructure. Or expanding existing infrastructure can benefit all. That means the benefits can also continue indefinitely.
For example, building, financing, or expanding common transportation routes. A highway or bridge can make life better and more prosperous for citizens. As well, communication infrastructure can benefit a community or nation forever. Such developments deliver benefits and opportunities well beyond a normal mortal lifetime. When well conceived and executed, such expansions bring great benefits to many people. In most cases, those who benefit do accept and support any related long-lasting debt.
But at tax time the bill comes due. In most cases, we mortals can see and benefit from immortal debt. Those benefits, muffle if not stop our grumbles over paying the bill to carry that immortal debt.
Raising awareness that government debt and financing differs considerably from that of an individual, is the point being made here. As long as the government can responsibly carry the debt, for greater social benefits, such funding can make very good financial and social sense.
The Bond Game – Are You Getting Your Fix?
Where does it all the financing come from? The fixed income market floats on the collective and seemingly endless ocean of immortal debt. That is the bond market. Investors and lenders place many trillions of dollars to finance bonds. Most of the funding contributes to the operation and growth of today’s governments and modern economies. The bond market is where lenders, investors, governments, and corporations meet.
It is also where mortal and immortal debt are both in the mix. The financial service industry has a huge stake in this debt game. It is a huge challenge to efficiently place this ocean of financing. The fixed income world is a huge complex topic on its own. It is the home of the fixed income part of your portfolio. It also has a direct impact on your mortgage.
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