Good Debt Vs. Bad Debt
Debt is one of the most frustrating things a person can experience. When the old saying there are only two certain things in life, death and taxes, was created, it should have said, death, debt and taxes.
At some point in our lives, everybody encounters debt. Debt can be an overwhelming force. To cope with that force, a person should understand the difference between good debt and bad debt. From there, they can look at aspects of their life to develop a game plan to reduce debt and the emotional burden it brings.
Two kinds of debt
When you go to the doctor, you hear about good and bad cholesterol. If you're like most people, you don't know what the difference is. Not knowing the difference harms your health. Debt works the same way. Not knowing what debt is good hurts your finances and keep you chasing your own tail. Not all debt is bad. Some debt actually helps you. Having student loans? Good debt. Having a $30,000 car loan is Bad debt. A home mortgage is Good debt. The deciding factor between good and bad debt is depreciation. Cars depreciate in value as times passes. A college education funded by student loans helps you improve your income over a lifespan. A home's value increases over time. That's why those are considered good debt and a hefty car payment is not.
Coping with stress
Most Americans have a form of bad debt, be it credit cards or car payments. The bad debt is the debt you want to eliminate first. Debt can be an emotionally overwhelming frustration. Many people work 40 hours per week and do little to erase their debt, causing depression over their situations. Learning to cope with and conquer debt makes for a healthier life.
1. Accept your debt- Own the fact that you have debt. Don't let it beat you down, but own it. Accepting your faults and problems helps ease their weight.
2. Decide to fight- Don't let your debt win. Accept it and then choose that you're going to pay it off, one penny at a time. Look at your budget and make the changes so you can eliminate your debt each month.
3. Consolidate the enemy- Try to move as many high interest accounts to lower interest accounts. If you've got a credit card at 25 percent interest and another at 15, try to move all debt to the 15 percent. Avoid costly consolidation assistance; try to do most of it on your own.
4. Pick your battles- Look at the accounts charging you the most in interest. Make it a priority to pay that off. However, if that enemy is too large and will take too long to fight, take on smaller battles. Pay off smaller credit cards and then decide to fight the big monsters.
5. Reward yourself- Make it a game. As you eliminate each credit card or payment, celebrate in a small way. Not the kind of way that runs up your debt again, but the way that rewards you for success.
