Debt Is Not a Four-Letter Word
Dealing with your bad debt so you can start building good debt
Most people view debt as a four-letter word. We have been conditioned that all debt is bad. We’ve been taught to fear debt. But not all debt is bad. There is good debt too. Understanding good debt, and utilizing it, is an essential part of attaining financial independence.
The difference between good debt and bad debt
If the borrowed money is simply spent on consumption—a vacation, jewelry, or shoes that you charge on your credit cards—then that is bad debt. The car loan that you write a check for each month is bad debt. Bad debt is debt that you pay for out of your own pocket.
Good debt is debt that someone else pays for you. A good businessperson may borrow money to grow a business. That debt is good debt if it is paid back out of the positive cash flow of the business. When you purchase a rental property, you will most likely have a mortgage or loan on the property. If you manage the property well, then the rent from the tenant pays the monthly mortgage payment. That is good debt.
Bad debt sucks!
Robert and I once had a tremendous amount of bad debt. Some was from being broke and charging as much as we could on our credit cards just to survive. More bad debt came from an early business venture of Robert’s that went south.
It’s a horrible feeling to wake up in the middle of the night, worrying how we will make our next house payment or wondering which expense I may have to give up next. It sucks. It caused conflict within me because I kept telling myself, “This shouldn’t be happening to me!” It also caused stress between Robert and me. Robert and I are living proof that the number-one thing couples fight about is money.
For those of you who are struggling with bad debt, there are tools and programs you can utilize to get out of bad debt.
Dealing with bad debt
When Robert and I were facing hundreds of thousands of dollars of bad debt, I went looking for answers. I ran into the same advice everywhere I turned.
The advice was:
Pay off the debt or credit card with the highest interest rate first
Pay a little more every month on every debt you have
Cut your monthly expenses
I had done some of that, but I was still in just as much debt as when I started. Then I came across a formula that rang true for me. I jumped on the get-out-of-bad-debt plan and started. This is a nine-step program that Robert and I put into an audio program called How We Got Out of Bad Debt which is available in our store but we’ve also created a book version called Freedom from Bad Debt available for free on our website. Here are a few highlights:
I stopped paying off a little bit more on each debt; that didn’t work. I paid the minimum on all bad debts except the one I was focused on paying off first.
I did not pay off the debt with the highest interest rate first. I first paid off the debt with the least amount owed. Why? Because I wanted a win early on to prove that I could do this.
I did not do anything differently regarding my expenses, like reducing expenses or cutting up my credit cards. The only one thing I had to do differently was come up with an extra $100 per month. Now if you can’t do that, which anyone can, then your chance for financial freedom is slim.
As I said, it’s a nine-step program, and it worked for Robert and me. Most people can eliminate their bad debt within five-to-eight years. So if you’re fighting against a wall of bad debt, then this program is something to consider.
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