Robert Kiyosaki Explains the Difference Between Good Debt and Bad Debt and Why That Matters

Why do the rich borrow against assets instead of selling them when they need money?

According to Robert Kiyosaki, the difference comes down to financial education. Most people learn to sell investments or work harder when they need cash. Financially educated investors may use debt strategically to access capital while keeping ownership of their income-producing assets.

But Robert warns that the same strategy that helps investors build wealth can also destroy it when they borrow without understanding the risks.

In this episode of The Rich Dad Radio Show, Robert explains how the wealthy use asset-backed borrowing, why loan proceeds generally don't count as taxable income, and how to evaluate whether borrowing makes financial sense.

Robert discusses three categories of collateral that investors may use to access capital:

-Real estate: Refinancing an investment property to access equity while continuing to own the property.

-Gold and silver: Using precious metals as collateral for a loan without selling the underlying holdings.

-Stocks and other securities: Borrowing against eligible brokerage assets, which can expose investors to margin calls and forced liquidation.

Each method comes with different lending requirements, interest costs, collateral risks, and repayment obligations.

Robert revisits one of Rich Dad's most important lessons: The purpose of borrowing matters.

He distinguishes between borrowing to purchase liabilities that consume money and borrowing to acquire assets that may generate enough cash flow to service the debt.

Using rental real estate as an example, Robert explains why an investor should evaluate whether the property's net income can cover the borrowing costs.

If an investment doesn't generate sufficient cash flow, the borrower may have to cover the difference out of pocket.

The lesson isn't that debt automatically creates wealth. It's that debt requires a financially sound purpose and a plan for repayment.

Robert introduces a critical lending concept: loan-to-value ratio (LTV).

LTV measures the amount borrowed relative to the value of the collateral.

He demonstrates how borrowing a smaller percentage of an asset's value can create more room for price fluctuations before a lender demands additional collateral or repayment.

Borrow too aggressively, and even a relatively ordinary market decline may trigger a margin call or forced sale.

Robert illustrates how falling collateral values, rising interest rates, and lost rental income can combine to threaten an investor's financial position.

What you'll learn:

-Why the rich borrow against assets instead of automatically selling them
-Why loan proceeds generally aren't taxable income
-How refinancing can unlock equity in investment real estate
-How investors may borrow against gold, silver, and stocks
-The difference between good debt and bad debt

Robert closes with one question he believes investors should ask before borrowing:

Can I safely borrow against this asset to acquire another asset that generates enough cash flow to pay the loan?

The answer requires more than optimism about rising asset prices.

It requires financial education, careful analysis, sufficient cash flow, and an understanding of what can happen when markets move against you.

The rich don't build wealth simply because they borrow money. They learn how to use debt strategically—and when not to use it.

00:00 Need Cash Fast
00:51 Why Selling Hurts
03:06 Debt Is Money
06:24 Private Deals Pitch
08:36 Debt Not Income
10:11 Three Borrowing Doors
11:43 Home Equity Trap
13:20 Borrowing Rules
18:18 Loan To Value
20:22 Seller vs Borrower
23:16 When Leverage Backfires
24:21 System Is Rigged
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Disclaimer: The information provided in this video is for educational and informational purposes only. It should not be considered as financial advice or a recommendation to buy or sell any financial instrument or engage in any financial activity.

The content presented here is based on the speaker's personal opinions and research, which may not always be accurate or up-to-date. Financial markets and investments carry inherent risks, and individuals should conduct their own research and seek professional advice before making any financial decisions.

Cameron Long

Cameron is a seasoned CFO and CPA with 31 years in finance. He created the AI Trader's Playbook to help everyday investors use AI to find high-confidence trades — in minutes, not hours.

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