Debt Is A Dirty Word! (Or Is It)

As a society we are out of control with debt.  If you think about it we are a now society, we are impatient and we want it NOW!  I want, I want, I want, that is the motto today.  Oh and I don’t have the money to pay for it so I will put it on a credit card with 23% interest and a really low monthly payment.  It is nice of the credit card company to help me out with low payments.

We are so out of control, today’s children are expected to be the first generation ever to not do better than their parents.  Can you imagine that, with the prices of things today how will our children not be in debt, probably serious debt? 

Keep in mind not all debt is bad; yes some debt is worse than others so let’s define the different types of debt.

1-The first type of debt is what I will call (for lack of a better term) “Good Debt”.
2-The next type of debt would be called “OK” debt.  This is debt that you are ok to go into but you would rather not if you could avoid it.
3-The last debt is “Bad Debt”.  This is debt that you should avoid whenever possible.

Good Debt
Buying A Home – This type of debt is called “Secure Debt” there is something that the lender has as collateral.  Buying a home and using a mortgage is good debt because in theory by the time the house is paid off it will be worth more than you paid for it (even with the interest).

OK Debt
School Loans – Paying for your education would be almost impossible for many college students if they had to pay for it each semester.  You will start paying it off after you get out of school. There are usually favorable interest rates attached to these types of loans.

Auto Loan – Having a car for many is the only way to get around so taking a loan out for it is ok if you follow some guidelines.  Remember you don’t need to buy a new car, there are some very nice pre owned vehicles out there at a reasonable price.  Also if you are going to take out a loan for say three to five years plan on keeping the car for at least two years longer than the loan.  Keep making the car payments to yourself and save it for the next car.

Bad Debt
Credit Card Debt – This is a BIG place where we as a society have gone wrong.  I don’t have the money for it right now, just put it on the credit card.  I will pay it later.  The problem is when the bill comes in you don’t have enough to pay it off so you make the minimum payment and this is where the vicious cycle starts.  As a society we keep charging month after month and we keep getting deeper and deeper in debt.

Home Equity Line Of Credit (HELOC) – Home equity debt might be the worst of all (might).  Don’t get me wrong there may be good reasons to use your home equity line of credit but for the most part it is a bad use of debt.  This debt is now secured.  Meaning the lender has an asset they can come after for repayment of the loan (Your Home).  So as you consolidate your debt from your credit cards and put it into a HELOC you took unsecured debt and made it secured

Although debt is classified here as Good, OK and Bad there really is no true good debt.  If it can be avoided then it should be avoided.

Strategy Based Profits TIP: – Try to pay cash if possible and never turn unsecured debt into secure debt.

Robert J. Roy
Money Man