Debt: The Good, the Bad and the Ugly – Which do you have?

This is a helpful article about debt from Christine White at Money Coaches Canada.

The less debt you have the better. That being said, you will hear people talking about good debt versus bad debt. Put simply:

Good debt

  • Used to purchase an asset, like a house or investments.
  • Ideally these are appreciating assets, something with real value that you could sell if you needed to clear the debt.
  • So while a car loan has an asset attached to it, it is depreciating, so something to be cautious about.

Bad debt

  • Comes from buying ‘stuff’ and living beyond your means.
  • If you are running a balance on your line of credit or your credit card that originated from purchases that you didn’t have the money for, this would be bad debt.

Ugly debt

  • Can be either good or bad debt spinning out of control.
  • If you aren’t sure how much debt you have, if you have balances on multiples credit cards, or if you are using your line of credit to pay off your credit card or your mortgage.
  • Take a deep breath, get honest with yourself, sharpen your pencil and make a payback plan before it’s too late.

When interest rates are low, people talk about ‘cheap money.’ You might be tempted to take on debt now because

you think it won’t cost you as much as when interest rates are higher. Maybe, but be careful if you aren’t financially or emotionally prepared with a plan to pay down your debt. You need to remember that overdue payments, damage to your credit, sleepless nights, stress and lack of freedom all add to the cost of borrowing.

It may be necessary to take on debt to attain your goals (e.g., a mortgage for a house). That’s okay. The key is that you stay in control of your debt, you have a plan to pay it off—and you stick to it.  Otherwise, you’ll find yourself on the Never Never plan – never paying off your house and never being able to retire.

Responsible Debt Management

  •  If you can’t pay off your credit card each month, don’t use credit.
  • Your Line of Credit isn’t your money.
  • Don’t rely on a lender to tell you what you can, or can’t afford.  That’s how they make their money!

Get Out of Debt

No matter what the reason for the debt, so-called ‘good’ or ‘bad,’ debt limits your options. It is as simple as that.

5 Tips to Get Out and Stay Out of Debt

  1.  Know why you want to be Debt-Free
  2. Make paying down debt a #1 priority
  3. Make debt reduction systematic
  4. Tackle one debt at a time
  5. Set a date to be debt-free.

(some excerpts from UNSTUCK – How to Get out of Your Money Rut and Start Living the Life you Want by Money Coaches Canada co-founders Karin Mizgala and Sheila Walkington)

If you have questions about your money management please contact Christine at:

Christine White | Money Coaches Canada |christine@moneycoachescanada.ca | www.moneycoachescanada.ca