Dangers of Long Repayment Periods Debt and Poverty

Debt and Overborrowing

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Debt and profitability ratios can go hand-in-hand but they rarely function in a directly proportionate manner. For example, if you borrow 10% of your portfolio's net asset value to gain 1% profit, that does not mean that borrowing 100% of your net asset value will allow you to generate a 10% return. All it means is that you are subjecting yourself to a higher degree of risk which in turn means exposing yourself to a higher degree of losses. Be wary of borrowing too much; if you have to borrow, borrow an amount that you can pay off out of your own pocket if worse comes to worst.