Tuesday, October 16, 2012

How to Get Rich - Kill Your Bad Debt

Do you know the difference between good debt and bad debt ?

Do you know how to make debt work for you ?

The wealthy know the answers to these important debt issues, you should too !

Bad Debt 

Bad debt is defined as any debt that you incur to purchase something that you do not receive an income from. Most consumer debt falls into this category.

Credit cards, car loans, lines of credit, even most mortgages fall into the bad debt category.

Good Debt 

Good debt, yes you probably guessed, is any debt that you incur to purchase an income producing asset.
Investment loans, brokerage loans, mortgages for investment properties, etc. fall into this category.

Kill Your Bad Debt

When it comes to building wealth, the key is to eliminate  (or kill) all of your bad debt. You cannot possibly get rich if you have to continually carry around the ball and chain of bad debt. Your income will continue to make someone else rich, namely your bank or other financial institution. Not a good plan.

To kill bad debt, you can either pay it off with a repayment plan or find a way to convert your bad debt into good debt.

Repayment Plan

For most, unless you already have liquid investments, this will be their only option for killing bad debt. Start by identifying which of your debts incurs the highest interest rate. If you have credit card debt, this is normally where you start. Next, proceed to the next highest rate and so on.

To free up funds to put towards repayment, you will likely have to make sacrifices to your lifestyle or increase your current income level. Either way, it will not come without some pain. Motivation is the key in any debt repayment plan. It will take time and commitment.

Turn Bad Debt to Good Debt

If you already have investments that are liquid (easy to turn into cash) and will not incur a lot of income tax if you were to cash them in, it may be best to look at this option for killing your bad debt.

First, cash in all of your investments that fall into the above category. Second, use this cash to pay off all of your bad debt. Third, obtain a new loan for investment purposes. Fourth, use the borrowed funds to buy back your previously cashed in investments.

This will in effect turn your bad debt into good debt. The big advantage of this option is that in many countries, you will now be able to "write off" your interest payments as an investment expense on your income tax. This can be a significant amount, especially as your income increases.

The key for this option to work is that your investment income or expected gains must be greater than the interest you will be paying on the loan. Check with your local adviser before trying this option.

R. I. P.  

Both of the above options could be used together to ensure your bad debt is killed and hopefully will never resurface from it's ugly grave. Motivation and determination to improve your financial life will be absolutely necessary to achieve this ultimate goal.

As always, I welcome your comments and suggestions for future topics.


Anonymous said...

Have you ever considered writing an ebook or guest authoring on other sites?
I have a blog based upon on the same topics you discuss and would really like to have you share some stories/information.
I know my audience would value your work. If you're even remotely interested, feel free to shoot me an email.
My homepage : YRPay

Anonymous said...

Hi everyone, it's my first visit at this web page, and post is truly fruitful in support of me, keep up posting these types of articles.
My web site - YRPay

Anonymous said...

wow, this one is good, gonna use for another sport but i think it'll be just as good, BIG thanks :)

Anonymous said...

Thanks for anу other magnificent artісle.
The plасе else may just anуone get thаt kіnd οf infοгmation in such а
perfect aρрroach of wrіting? I have a ρгesentatіon subsequent weеk, аnd Ι'm at the look for such information.
Also visit my web site loans for bad credit

Anonymous said...

I have learn several excellent stuff here. Definitely price bookmarking for revisiting.
I surprise how a lot attempt you put to create one of these wonderful informative website.
Visit my page options trading demo

Anonymous said...

If you desire to increase your knowledge simply keep visiting this site and be updated with the newest information posted here.
Here is my blog - Como Conquistar A Una Amiga

Anonymous said...

I have to thank you for the efforts you've put in writing this website. I am hoping to check out the same high-grade blog posts from you in the future as well. In truth, your creative writing abilities has encouraged me to get my own, personal website now ;)
my web page > Lexington Law

Anonymous said...

An outstanding share! I've just forwarded this onto a colleague who has been doing a little homework on this. And he actually bought me lunch because I stumbled upon it for him... lol. So let me reword this.... Thank YOU for the meal!! But yeah, thanks for spending some time to talk about this issue here on your web site.
Also visit my website organic

Anonymous said...

I'm pretty pleased to discover this site. I want to to thank you for ones time just for this fantastic read!! I definitely loved every bit of it and i also have you saved as a favorite to look at new information in your website.

Anonymous said...

I'm amazed, I have to admit. Rarely do I encounter a blog that's both
educative and engaging, and without a doubt, you have hit the nail on the head.
The issue is something too few people are speaking intelligently about.
Now i'm very happy I came across this during my search for something concerning this.
Check out my web site : google adsense earnings

Anonymous said...

Very good blog post. I definitely love this website.
Continue the good work!

Feel free to visit my web site - domain names for sale

Anonymous said...

Fantastic web site. Plenty of useful information here.
I'm sending it to several friends ans additionally sharing in delicious. And of course, thanks to your sweat!

my weblog :: Fingerprint Building in Thailand
my web page: Fingerprint Building in Thailand

Anonymous said...

Hi! I simply wish to offer you a huge thumbs up for the
great information you have right here on this post.
I am returning to your web site for more soon.

Also visit my weblog; Power Complaints
my page - Check This Site

Anonymous said...

What's up colleagues, pleasant post and pleasant arguments commented here, I am genuinely enjoying by these.

Feel free to visit my blog - juegosparapc10

Anonymous said...

I'm amazed, I must say. Seldom do I come across a blog that's both educative
and interesting, and let me tell you, you have hit the nail on the head.
The problem is something which not enough folks are speaking intelligently about.
Now i'm very happy that I came across this during my search for something concerning this.

my site twitter

Anonymous said...

If you are going for best contents like me, simply pay a visit this
web page daily since it presents quality contents, thanks

my web blog http://beyondmidnight.net/blog/?p=171 - http://www.sayitnow.nl,

Anonymous said...

Greate article. Keep writing such kind of info on your page.
Im really impressed by it.
Hello there, You've done an incredible job. I will certainly
digg it and for my part recommend to my friends.
I am sure they'll be benefited from this web site.

Here is my homepage ... seo service

Anonymous said...

Thanks for sharing your thoughts. I really appreciate your efforts and I will be waiting
for your next post thank you once again.

my page web site []