Debt - Good or Bad?

First, as part of my desire to not always post on Facebook on politics, I thought I should start making a point of writing about one of my biggest passions - MONEY!

This last week as I've laid in bed writhing from pinched nerve pain I was reminded of another kind of pain - debt. Historically, Financial Planners have talked of good debt and bad debt. What they're really trying to say is that there is some debt that COULD help you increase your net worth (borrowing to invest or to purchase a house might fall under this catagory) and "bad debt" is consumer debt - you borrow money to buy stuff that depreciates in value and eventually becomes worthless I'm going a step further. There is no good debt.

Your goal should be to get out of debt. If markets fall, whether they be stock markets or real estate markets, or bond markets - whatever - if you have no debt, the impact on your long-term financial position is minimal. Getting out of debt takes a real committment and desire to do it. EVERY single penny of income must be thought of in terms of getting out of debt. There will ALWAYS be something that seems like a good idea to spend money on - but every penny you spend is one less to pay down debt with. What is possible? I've read individual accounts of people paying off $40,000 in debt in two years with an income of only $35,000/year. The answer is the same as always - how badly do you want it?

The first step to getting out of debt is to get control of your current spending. We talk often about our government having a deficit, and a debt. The debt is the accumulation of all the deficits. Same with your household. If you are spending more than you have coming in, you are running a current deficit and will not be able to even start paying down your debt until you get that under control. My favorite writer, speaker, and teacher on debt is Dave Ramsey This fall there will be another session of his Financial Peace University run here in Cardston and I HIGHLY recommend it. The course will help provide you with not only the basic knowledge, but also the motivation to get it done!

Now before all the real estate moguls out there start ranting to me about the "optimum" debt on a revenue property being x% (usually around 50%) let me say this.  Leveraging, or borrowing to invest, is a magnifying glass.  It makes gains bigger, but it makes losses bigger, too.  There are times where this has made some people alot of money.  BUT, if you want to isolate yourself from the volatility out there, eliminating leverage is a great way to do it.  If you have the self-discipline and tempermant to use debt sparingly and judiciously in your investing, it can be profitable - but there is always the corresponding increase in risk.  MOST people, simply shouldn't do it.