Good Debt versus Bad Debt
Debt Can Be Overwhelming!
I have been reading a lot of articles recently about finance and budgeting. It seems that everyone put out an article near the end of the year to talk about your personal finances and how to get your year started off on the “right foot”.
One thing that seems to resonate within each of the articles is centered on the elimination of personal debt. It seems to be a “hot button” and lots of people are talking about different strategies to help you put a plan in place to eliminate debt and free up your income for wealth building.
Let’s be honest for a few minutes. We all use debt in some way. It would be very difficult to purchase a home without utilizing a home mortgage loan – right? It would be great if we could structure a plan to save systematically and build up enough wealth to actually make a home purchase with cash but it isn’t always that easy.
Many people would refer to mortgage debt as “good debt” because you are making an acquisition of an asset that will appreciate in value. Theoretically, the use of this “good” debt will offset the interest expenses and the value of your home will increase over time. This does make good sense but that is seldom the reason behind it. We don’t usually sit down and talk about it this way – we just want a house – NOW!!
Other debt is considered “bad” debt and that usually refers to revolving debt – credit card debt or lines of credit. These notes usually have payments that are set up that do not systematically reduce your principal amounts owed and continue to dig a hole over time. These forms of debt are usually used to make purchases of things that you don’t really need. Low minimum payments and interest only plans will put you farther and farther behind.
There are two schools of thought on how to eliminate debt and I will talk about them next week. For now, let’s start out by making a full list of all of your debt. ALL of it! Home, Boat, Cars, Student, Credit Cards, Home Equity, Furniture, Uncle Ted, Your Mom – all of it. Make a list and we will discuss two ways of eliminating it next week!
If this seems overwhelming to you but is something that you have been thinking about for a long time, give us a call and schedule an appointment. We are experts at it and will be happy to offer you some basic direction and advice. It is what we do at Hollander & Associates.