Debt
From CaseyPedia
Debt is money owed as a result of obtaining loans or using established lines of credit.
Financial advisors usually counsel people to view debt in two categories:
- Good debt is the debt that is used in order to generate future returns greater than the cost of the debt. Primary types of good debt include residential mortgages, which allow the purchase of a valuable asset and the building of equity over time, while simulaneously providing significant tax benefits; and student loans which pay for an education with expected future financial benefits. In addition, many types of business loans are considered good debt, as they are used for financing the expansion and growth of revenue-generating enterprises. The key to good debt is that it is almost always tied to a financial plan, which includes provisions for paying the debt.
- Bad debt covers most other types of loans and credit. It includes debt obtained in order to purchase frivolous items as well as debt used to pay for routine expenses. It may also include debts that are obtained for generally good purposes, but without a real plan for making the payments over time and no allowance for contingencies. In addition, it includes debts that are obtained in order to pay the interest on previously-existing debts. Usually such debts involve loans or lines of credit with extremely high interest rates from organizations like CashCall.
Virtually all of Casey Serin's debt is bad. His problems include:
- Too many lines of credit. The existence of more than seven lines of credit is considered a red flag by credit rating agencies, and can impact one's FICO score. As of early 2007, Casey admitted to Galina having 11 lines of credit and himself having 12, four of which were privately obtained and thus not reflected on his credit report, and two of which were closed due to nonpayment.[1] These did not include any of the mortgages he still had at the time.
- Use of debt to pay off other debts. Regarding the Calla Way purchase, Casey explains I bought the house slightly under value ($330K) with built-in $30K of equity which I chose to cash-out right at purchase by buying at full appraisal value of $360K with 100% financing. (My FICO score was only about 630, I think). I used the money to pay off our $30K of credit cards: about 15K was from Russ Whitney RE seminars and the rest was expenses from wedding in 2004 and miscellaneous consumer debt.[2]
- Use of debt for frivolous purposes. As noted above, he borrowed as much as $15,000 to pay for a dubious real estate seminar. It has also been documented that he borrowed approximately $16,000 to attend NRU.
- Use of corporate credit to pay for routine expenses including rent, as well as a personal vacation.[3]
