A Debt Management Solution That Makes Sense

Mastering debt management is a necessary aspect of making your money work for you. A good place to start on your road to Financial Freedom is learning debt management and to begin you have to know the difference between good debt and bad debt. First let me give you some definitions:

Good Debt: Any debt where the cost of the debt will be surpassed by the profits that are made by whatever it is that you took on the debt to buy is good debt.

Bad Debt: Any debt where the cost of the debt will amount to more than the profits that will be made by whatever it is that you took on the debt to buy is bad debt.

It’s that simple. When you are looking into taking on debt do not just be mesmerized by whatever it is that caught your eye. Debt management mandates that you have to run the numbers. Yes, you can finance that car and drive it off of the lot right now, but is it worth it to pay $40,000 for a $19,000 car? Even if you have to use your last $5,000 as a down payment? If your answer is yes then there is no help for you. You are incapable of debt management. Stop reading now. For those of you with the common sense to say “No” to the above question I am going to give you a jewel that was given to me by some of the best to ever do it. This jewel was dropped on me when I was sixteen years old. I was told that debt management is essential to accumulating wealth and that anybody who knows anything about debt management would never even consider putting $10,000 down on a $100,000 dollar car.

That would be counterproductive. A true hustler would use a $10,000 dollar car to make $100,000. That is debt management. I was told that the key to debt management is not to avoid debt entirely. The key to debt management is learning how to use debt to your advantage. I have never forgotten this piece of wisdom and it is a jewel that can be applied to every aspect of our financial decision making process. The difference between good debt and bad debt is that good debt is going to pay for itself and put more money in your pocket while bad debt is money owed for an unnecessary item that you couldn’t pay for. Control yourselves people. Now it is time for another definition:

Necessary Debt: Any debt that is essential to either drp 程序 the running of your business or to taking care of your business is necessary debt.

Examples of necessary debt include things like a car, a house, credit cards, student loans, and any other recurring business related expenses that you may have. The important thing to understand about necessary debt is that it can either be good debt or bad debt depending on the circumstances. This is important. Due to the fact that I know that most financial advisors put the items that I listed in either the good debt or bad debt categories, I am going to explain why I call the above expenditures necessary debt.

The Mortgage: The American Dream has turned into the American Nightmare. Unless you have been living under a rock you know that this once all-american investment is now under heavy scrutiny. People have been led to believe that their house is the most expensive purchase that they will ever make in their life. This is not always true. In some instances it will be your mortgage loan that is the most expensive purchase that you will ever make in your life. It is not uncommon to see the cost of getting the loan (the interest) amount to more than the principle of the loan itself. You end up paying the bank $160,000 to loan you $150,000. So if you hold onto the house for the life of the loan you end up paying $310,000 for a $150,000 dollar house. I know what you are thinking, that the value of the house will appreciate over time thereby offsetting the interest charges on the loan.

 

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