Debt vs Equity: Who's the Winner

2008-08-07 10:38:30

( Financial )



Right off the bat, when anybody asks you which is better to have, debt or equity, you're surely to respond that equity is better. Debt vs equity: equity wins. You want to have investments rather that debt. That is only logical and reasonable. There are some instances, though, that make equity borrowing financially viable.

If you have good credit, you will have access to loans that another person with bad credit won't have access to. These persons won't have the opportunity to take advance of economic twists and turns that create unusual situations when borrowing to invest could be the right move. Sometimes it's not a question of debt vs equity.

Some financial situations could arise when you encounter a great investment opportunity but you have all your extra money tied up in other investments. Liquidating assets already invested in other instruments can be a lot of hassle for you. This situation is ideal for equity borrowing. You leverage your other investments by using them as collateral to access more funds. These extra funds can be used for other investments that offer high returns. This is also called debt and equity financing.

Debt vs equity questions arise when you are not sure if the new investment you would like to enter into would result in significant financial gains. Of course, no one can really be sure of the outcome of any investment but carefully weighing the risks would let you bet your money more wisely.

Another way of putting it is your putting your money on the most likely winner. Identifying a worthy investment for debt equity does not come naturally with anyone. No one is born with the skill to distinguish an investment that will succeed and an investment that will fail.

With experience will come the ability to catch the investments perfect for equity borrowing. This is a skill that you can learn.


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