My Advice on Debt
What you’re going to read here about debt or anything else for that matter is probably some information you’ve already come across before, but I hope that its accompaniment by some actionable steps to put this knowledge into practice makes it that much more valuable.
I mean we all know that depending on how you use it, debt can be good or bad, but often we tend to put off tackling the issue in the moment, rather choosing to file it alongside all the other items in life’s to-do list that’s gathering many layers of dust by now.
Understanding good debt versus bad debt
So to pick up the discussion at what is perhaps the best starting point when it comes to dealing with debt, one needs to clarify the difference between good debt and bad debt. We’ll start with the bad debt because that’s often the driving force for anyone searching for any information about debt online. You’re essentially looking to get out of debt, which means you have some bad debt to have to deal with.
So bad debt is debt which is destructive, which means you owe a creditor some money and that’s essentially affecting your life economically. To put it into the kind of perspective which will make you understand just how serious of an issue bad debt is and exactly what it is, it’s basically spending money which you don’t have, and because of that you will have to pay back a little bit of extra on top of that in future. It’s a losing battle, isn’t it? I mean if you have to borrow some money right now it means it’s money you need or want, but money which you don’t have, right? So what makes you think you’ll have it in the future, especially considering you’ll have to have a little more to cover the interest tied to borrowing money?
So it all depends on how you make your money. If you have to work for it by the hour then bad debt equates to giving your time up in the future to work to pay off that debt. Are you magically going to be able to log more hours at work and make more money?
If you think about it from a different point of view – from the other side of the fence, so to say, debt becomes good debt because when you use the same factor of time with which bad debt effectively enslaves you to make it liberate you economically and perhaps even generate you wealth.
Getting out of debt
So bad debt is something to get out of – something to pay-off, and that should be your goal until it is achieved. Start with the ordinary things in your life, such as your car. Once you’ve paid it off after the standard five to six year financing period, don’t upgrade and effectively start the whole debt cycle again.
Don’t take on any debt which you don’t need, as hard as it may appear to be. Try to have any long-term financial commitment you feel you really need to get into paying you back in some way or generating some kind of value which you can make use of for as long as you live. So for example, your house is still widely considered to be the biggest investment you will ever make, but don’t stop at just buying it as your home. Make it generate some cash flow for you in some way, like renting a room out with one of the popular platforms available today, such as AirB&B.
Fundamentally getting out of debt entails strategic use of the time you invest in generating income, so the aim is to spend less money than what you bring in, with as much of the surplus directed at paying off your debt as possible.
Using credit wisely
In many instances you’re probably already using debt wisely, referred to as credit which is extended to you, of course. For example, the average person would not be able to afford to buy a house were it not for the existence of credit in the form of a mortgage, neither would they be able to afford the car they drive around in were it not for auto finance.
So debt is not all bad, but you need to learn how to use it wisely, through something like using it as start-up capital to generate revenue and profit if you’re going to look beyond the normal channels through which we already use debt wisely.