Do you have any debt?
Who doesn’t right? Having debt has become so normal it has become a part of personl finance courses. Yes, you heard right, teachers right now as you read this post are showing people how to use debt and why having debt is good. I know i’m thinking who are these people and why are they teaching finance when they are broke and have personal finance debt.
Good debt vs Bad debt
You have probably heard this before right, that there is a difference between good and bad debt. Well I personally think that all debt is bad but lets see what others are saying.
Good Debt
Financial gurus have told us for years that good debt is any debt that has value. Real Estate property is consider as good debt to have because it have value and during good economic times, properties tend to go up in value. So if you can sell a peice of property for more than the original loan amount, it would be considered good debt because you walk away with a profit after you pay back the loan.
Another good debt that gurus say to have is student loan debt. The reasoning behind this concept it simple, you go to school on somebody elses tab and you get a degree that will kickstart your career and hopefully boost your income. You can pay back student loans at a low rate over a long period of time rather than paying for tuition cash up front. You end up making more money in your lifetime because the student loans that helped you through college or graduate school.
And then there are business loans. Business loans are used to start businesses every day and they are considered to be good loans to have. Again these loans are meant to help you start a business and as you start to earn revenue from your business you simply pay back your loan.
For the record, a business loan is how I ended up with a lot of debt back in 2006. I do not recommend any debt.
Bad Debt
Credit card debt make it to the number spot on this list of bad debt. The reason why is simple. Credit cards are usually used to pay for tangible or durable goods. Goods that can be eaten, worn and can lose value in split second. The bad part about using credit is the high annual percentage rate that is attached to every purchase. It’s like taking a twenty dollar bill out of an ATM and getting charge $3.00 from the ATM company and another $1.50 from your own bacnk, it doesn’t make sense but in the case of an emergency we still do it.
We hardly ever use credit cards for emergencies anymore, wait I said we, I don’t use credit cards nor own one. Americans tend to use credit cards with the intent of paying them off every month. With the way America runs people are so busy that payments are usually late and i’ve said it before how credit card companies just love for you to only pay minimum payments. It’s like you are in a membership that pays hundreds of dollars every month for nothing in return.
The debt that beats up Americans is auto debt. We think we need a new car or we want the newest edition of whatever car manufacturer we love. Car payments are the worse part of personal finance because automobiles lose value fast. It’s hard to sell cars for what we think they’re worth. Buying cars is not an investment nor will it ever be. Yet every day when we get on the highway we see those new cars that yet to have a license plate because they are so new that we think to ourselves, I want one, maybe one day.
If you wait and save what you would have paid you can get an awesome deal on a used car when you pay cash for it. It’s the truth.
In conclusion, all debt is bad if you are broke and are unable to pay back what you owe. In fact if you are in debt, pay off your debts so you can really start to enjoy life. Stop carrying that burden of debt and free yourself and teach others to do the same. I’m debt free and I don’t borrow money, I make money and save it. My wife and I scream i’m debt free on the Dave Ramsey show. Listen to our call.
