Bad Debt
It is easy to find people talking about getting out of debt. Searching for the phrase on Google gives you about 90 million results. But should we always be trying to get out of debt?
The answer depends on the kind of debt. Any debt that is not contributing to you’re financial progress is bad debt.
If debt is being used to buy things that you couldn’t otherwise afford and don’t need it is probably bad debt.
This bad debt can come in many forms. It could be using credit cards to buy expensive meals, the latest clothes or whatever your particular vice is. It could be buying a new car every two years. It could be taking out a home equity line of credit to rollover your credit cards so that you can spend more.
Use debt wisely. Look for good rates and put the money to use for things that help you achieve your financial goals. Take out a loan for an investment property. Buy the furniture that you need and can afford with cash today on the zero percentage rate card you have and put your money away in a high rate money market (be sure to pay it off before the zero percent expires).
Before you use debt ask yourself these two questions:
Will this debt be used for something I need?
Is this debt contributing to my financial progress?
If you can’t answer yes to at least one of these questions don’t do it.