Advice to Stay Out of Debt
Advice to Stay Out of Debt
Advice to Stay Out of Debt
Well, the best advice to stay out of debt, hands down, is, don't go into debt in the first place. But with Canadian debt levels at all time highs that little bit of terrific advice isn't going to do a lot of people much good right now. And many of us grew up with debt as a kind of standard of living we saw in our parents' lives, and now have carried forward into our own. Who doesn't owe on their student loans? Who doesn't carry a monthly balance on their credit cards or line of credit?Although many Canadians, even most, might be in debt, the people we want to emulate are those who have no debt. What's their secret? Well, odds are, they know a thing or two that we can learn and copy.First, recognize there's good debt and bad debt. If you're a recent grad carrying $25,000 in student loans, you'll be happy to hear that's a good debt. It's considered a good debt because the return on that whopper of an investment should far exceed the money you had to borrow to make it. On the other hand, if it's a $10,000 debt on spring break trips to southern climes and lovely Margaritas, well, try and get your money's worth for those wild weekends, and you'll see what we're talking about. That's a bad debt.Here's another difference between good and bad debt. A good debt expands what you're worth, by either making you personally more valuable (because you've got an education and know stuff, for example) or adding tangible goods to your portfolio that are valuable (like investments, a home, or business). You'll know you've got it made with good debts when you go into the bank and are immediately ushered to the second floor where the suits hang out.A big key is to balance your good debts and eliminate your bad ones. That means paying off your credit cards as much as possible, not buying what you cannot afford (like a 42-inch high definition, blu ray television), and being sure to keep up on payments on your good debt. So pay that mortgage every month, and don't default on your student loans. But that doesn't mean you have to keep paying those high interest rates on your student loan.This is another way to manage your debt. For debts like student loans, which can sometimes have really high interest rates, see if you can negotiate it down or buy it out with a line of credit. That can save you significant dollars if you're carrying a large debt.Debt isn't always a bad thing. Owning a home, or capitalizing on a good education, can have terrific returns. Just be sure you know the difference between a good debt and a bad one.
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