Debt Payoff Plan | Debt Pay Off Plan

Why do some people talk about “good debt” and “bad debt”? How could there ever be such a thing as GOOD debt?

Well, some debt is worth taking on because of what you get in return. Even in this terrible housing marketing, a mortgage can be good debt. If the loan is a fixed rate loan, and you plan on staying in the house for a long time and it’s a house that you can afford, then that is good debt. You are buying something of value, an asset that some day will appreciate, an asset that you could leave to your children, and you are also buying a home that nobody can take away from you as long as you can pay the mortgage.

When you rent you can be asked to leave as soon as the lease is up, or these days, your landlord may be foreclosed on right after you move in.

Buying a car is also generally considered good debt. It probably makes more sense these days to buy a used car, because cars are not holding their value very well, but a car will provide you safe, convenient, reliable transportation to work, to school, et cetera, and by the time you are ready to sell it, it will still hold some value as a trade in. If you take the bus every day, there’s no trade-in value on that, and you still have to pay for it.

Paying for student education is considered good debt. It will result in a desirable career higher earnings for the rest of your life.

Now, contrast all that with credit card debt or “unsecured” debt – the debt that gives you nothing.

As soon as you buy something with a credit card, it’s used. Clothing, TV set, computer, bicycle – it’s no longer worth what it was brand new. It will get less and less valuable over time. As for restaurants, vacations, expensive salons – those are all things that you pay for and then they’re gone. You will never get anything back.

They’re all great to have if you can afford them – but if you buy them on credit and then just pay off the monthly minimum on the credit card, you will end up paying three to four times what the item originally cost, and it can take you a decade or so.

If you splurge on a $2000 television set at 18 percent interest, and pay a minimum monthly payment of 3 percent of the total, it will take you 17 years 9 months to pay off the debt in total and you will pay $3,908.17 – literally DOUBLE what you the item cost you originally!

That TV set won’t even be a memory by that point. And odds are you will get nothing back for it when it breaks down and has to be replaced, except a sore back from hauling it to the dump.

That is truly debt that gives you nothing back in return.

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