I like to help my clients take the whole approach to their finances. It’s too easy to lock into a single financial obsession, to bite into some hot topic in the financial news.
Rather than do that, I encourage my clients to step back. For instance, let’s take a look at the issue of personal debt.
Or, having good debt versus having bad debt.
First, let’s look at the good debt. Those two words – good and debt – don’t seem to go together, do they? But it can make sense when you step back and look at the big picture.
For many of us, home ownership is not just a goal it’s a dream – one that I share with many of you. Fortunately in our country a lot of us get to realize this dream. And if we have a chance to pay down the mortgage on our property, it feels good to do it. We own our place. We’re paying it off. It feels like we’re getting somewhere.
But let’s say you have a mortgage rate that is nice and low. Let’s say we’ve locked into a 30-year 4% fixed rate. Or even if it’s a little higher than that, you still have an outstanding deal. This is what you call good debt.
Now for bad debt. Just take out your credit card. If you owe money, what interest rate are you paying? Some credit cards have interest rates as high as 20%. I can say unequivocally that this is bad debt. Because it’s hard to get ahead of it. It’s the kind of debt that keeps us from attaining and maintaining the lifestyle we want. It’s more important to take care of bad debt like this than it is to pay down your good debt mortgage.
One more thing about debt. It’s a good idea to be conscious of your credit card rating at all times. Be sure to pull a credit report once a year to get your rating, and be sure that you are not a victim of identity theft.