Debt advice

When dealing with debt advice you should know that debt is a complex concept. Not all of it is good - a fact a surprising number of people fail to realize until they're in the trap. And yet not all of it is bad. When used intelligently, debt can be of tremendous assistance in building wealth.

One of the secrets, therefore, to being smart with your money is to differentiate between good debt and bad debt.

Keep in mind that lenders look at your credit report and they will look at some debts much more favorably than others.

Bad debt : When you use debt to finance things that can be consumed, you are accumulating bad debt. This is the kind of debt that creates an unhealthy financial situation.

You should never accumulate debt to purchase everyday items like clothes or food. If you use a credit card for these types of purchases, you should pay the balance in full each month. Be wise and follow this debt advice.

Debt used to finance a vacation is bad debt, too. Even though it might help you feel better, a vacation does not appreciate in value. Don’t use debt to pay for a vacation.

Good debt : Just like there is bad debt, there are good debts too. Some of your debt might be considered an investment.

You’re probably thinking, “How can anything as bad as debt be considered an investment!” If the debt was incurred to purchase something that will appreciate in value and can contribute to your overall financial health, then it’s very possible that debt is a good one.

For example, a home purchase can be considered to be a good debt. Since homes usually appreciate in value, the mortgage loan you take out to pay for the home is normally considered an investment.

Good debt is obtained through making wise decisions about your future, not for the sole purpose of having good debt. For example, taking out a student loan to obtain your Master’s degree is a valid reason for taking on additional debt. Obtaining a degree usually means that you’ll make more money over your lifetime.

Bad debt

Good debt

Credit card	Business loan
Auto loan	Mortgage
Store credit card	Real estate loan
	School loan

Debt advice: you must still be careful that you don’t take on too much debt, even if it’s a good one. If you’re overloaded with debt (good or bad) it hurts your financial health.

Since bad debts provide no value, it is usually a good idea to focus on paying off them first; they're more costly than your good debts. You should pay off auto loans and credit cards before tackling student loans or mortgages.

There are people who consider using good debt to pay off bad debt, like getting a mortgage for $100,000 instead of $90,000 and using the extra to pay off credit card balances. There are several reasons why this is not a good idea:

● First, repaying debt with debt is never a good idea.

● Second, the higher mortgage increases your monthly payments and the time it takes to build equity.

● Third, it ends up taking longer to pay off the mortgage than it would have otherwise.

Another debt advice: use cash to repay debts, not more debt.