An often overlooked issue when considering debt is the ability to match the term of the debt to the ability to repay.
Let's say you have the opportunity to make a onetime investment on the first of the month of $25,000 with a 100% chance of getting $35,000 in return.
That is an opportunity we would all want to consider, if perhaps a bit unrealistic. It is simple for this discussion.
You don't have $25,000 in cash sitting in your pocket so how will you finance this opportunity?
Your best choice will depend upon many things, but when you will receive the $35,000 makes a big difference.
Examples:
If the $35,000 is going to appear in 60 days a 6 month no interest credit card advance might be just the ticket.
If the $35,000 is going to appear in 9 months a one year bank line of credit might by just the ticket.
If the $35,000 is going to appear in even monthly installments over the next 35 months then a bank note or second mortgage might be just the ticket.
If the $35,000 is going to appear all at once in 35 months then perhaps a 36 month no interest note with a balloon payment would be the best choice.
If you don't have the ability to raise the $25,000 yourself you might take on a partner and share in the opportunity.
If the $35,000 is going to appear all at once in 578 months you may just want to pass on the opportunity.
Concept:
If you match the debt repayment to the return on the investment you can greatly reduce your stress and take advantage of many more opportunities.
I hope this helps you.
Rick
