Personal debt doesn’t always have to be bad news. Debt can be classified into different kinds that have different effects upon us and our personal finances and it can be important to understand those.
Bad debt: Those purchases we make for ourselves or for those greedy reasons. That new flat screen TV, the upgrade on our car (which we may have not needed), that new suit, watch or pair of shoes we may not have needed. That fancy new item when our old one worked perfectly. These are things our lives will have continued fine without but our inner voice feels gratified for purchasing.
Good debt: An investment in something through which we hope to receive a return on our investment. Education and teaching ourselves new skills, Investing in property through the house we live in or that second home which will bring in rental income. Shares, Stock market or something else similar which under reasonable circumstances will return our investment PLUS some additional money. This can be classified as good debt. Debt which will allow our finances to grow with time and the right advice.
Personal Debt: Small Steps
One our earlier articles talked about snowballing debt. Tackling the smaller amounts first and then moving onto the larger ones. These are all small steps on our journey to finding solutions to our personal debt and to moving forward on our personal finance journey. You don’t need to pay off every single debt that you may have accrued (good or bad debt) but you need to be keeping an objective in mind (debt free in 5 years) and taking small steps down the path of reaching that goal. A whole bunch of small steps will lead to a large result. To prove this I did some homework on an average number of steps a marathon runner will take over the course of the race. Of course results vary via length of stride and pace but on average 33,000 steps are needed to finish the race. Paying off one small debt is just your first step but its a start on the race.
Its not all bad news with Debt. I was once told by a smart man to pay for the best advice possible. As this man was a multimillionaire I happen to feel his advice was sound and its something I have tried to follow in my life since hearing that. There are organizations available to help with your debt and to help with finding solutions to paying down those debt issues. A lot of new business’s have started up to provide sound financial advice about budgeting and to provide a solution to finding a path out of your debt situation. A friend sent me a link to an organization in by the name of Cavalry Portfolio Services who provide helpful solutions to customers in Personal Debt situations.
Personal Debt: Making a Plan
The last piece of the puzzle in finding your way out of personal debt can often be a plan. Find the time to make sure you understand your situation, your earnings versus your debt. And then taking that first step of planning out an idea or map in order to take those small steps, to find the right advice and to get the right solutions to making your way our of your debt situation and into positive debt or indeed no debt! In a perfect world no one would have debt but as we all know society is far from a perfect the world. The best we can try for is to manage our personal finances and our debt in such a way that we are smart with our choices.
Photo thanks to Keith Ramsey