By: Shmuel Shayowitz

A TikTok video recently went viral with the heading, “I am in $25 million worth of debt … but that’s a good thing!” The man, holding a baby throughout the video, explains that his debt costs him over $127,000 in monthly payments to the bank. The person in the video must be in his high 20s or low 30s and seems pretty happy about his bold statement about being mired in debt.

Debt is a powerful tool that can be used to build wealth and achieve financial freedom. However, when misused, it can quickly become a trap that enslaves people in a cycle of financial struggle. In the TikTok video, he explains that the $25 million in loans allowed him to own real estate assets worth over $42 million. He says that his $17 million in equity and net worth isn’t even his favorite part, but rather, that the real estate helps him generate revenues of $287,000 a month in rent.

Granted, he incurs other expenses and operating costs, but he still walks away with a hefty profit when all is said and done. I wish more people understood this concept and used debt as the tool it is supposed to be. Instead, most of America is financially illiterate, and a majority of even ‘the educated’ don’t understand the basic principles of finance.

While this isn’t a perfect science, “good debt” is debt that is used to acquire assets that appreciate in value over time. For example, taking out a mortgage to buy a home or investment property is considered good debt because the value of the property is likely to increase over time or the property yields passive income.

Bad debt, on the other hand, is debt that is used to acquire assets that depreciate in value over time or to finance lifestyle expenses. Examples of bad debt include credit card debt and personal loans used to pay for non-essential items like vacations or entertainment. Debt can imprison people by creating financial and emotional stress affecting their daily lives. High debt levels often result in constant worry about making payments and can lead to excessive interest rates, damaged credit scores, and even legal actions.

The most common consumer debt is credit cards. Using credit cards responsibly and paying off the balance in full each month can be an excellent way to build a credit history and earn rewards. However, carrying a balance and accumulating interest can lead to costly expenses and will quickly negatively impact your credit score. Credit cards are the biggest traps that people fall into. One can argue that taking out a loan to pay for college or vocational training can be considered good debt because it can lead to higher-paying job opportunities and a better quality of life. We will leave that debate for a different article.

This week, I talked to someone who told me he was using his Home Equity Line of Credit (“HELOC”) similar to a credit card, in that he paid it off in full every month. He said he uses the line to help with the cash flow needed for his online business. After explaining some of his money maneuvers, I asked him if he accounted for the interest charges he paid on the HELOC. Unfortunately, he never calculated that into his business expenses. He was also under the assumption that the interest rate on his line of credit was in the 4’s. I told him to double-check his statements because that rate was probably the starting rate when he opened the line, but at this point, it must be in the 8’s or 9’s.

I haven’t heard back from him, but I am confident that he will be making some changes! My goal is not to berate those people who carry balances or use HELOC’s – I hope that is not how I am coming across. It is my hope, however, that by educating ‘the average Joe’ about the freedom and enslavement of debt that people will begin making better financial decisions and have less stress and pressure in their lives. Wishing everyone a Happy Pesach and best wishes for redemption in all of your struggles.

Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at Shmuel@approvedfunding.com.

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