How Am I Using Debt?

Let's face it...

Most families have on the average, an $8,000 debt. This is of the dead-horse kind. These are for doodads and other end-user commodities. This kind of debt is BAD! This is the kind of debt we want to avoid at all costs.

People even use their credit cards to purchase restaurant meals!

Having this type of debt shows a few things here. Some will differ with me but I stand my ground on it.

• They take on debt as a consumer.
• They are not financially-literate.
• They are not disciplined with their funds.
• They do not know the difference between good debt and bad debt.
• They do not know the the difference between an asset and a liability.
• They do not know the difference between conventional education and entrepreneurial education

What Is Bad Debt?

This starts with the wrong kind of education. To reiterate, our public schools, including schools of higher education may teach us how to become well-rounded employees and professionals, but it fails to teach us about finances and economics from the standpoint of an entrepreneur.

Many professionals have learned the niche they've chosen very well, and this, by itself, produces a false sense of security about themselves that since they know and have become such a professional in the niche, that they also make good judgement in their finances as well.

That most middle-class employees find it more important to LOOK wealthy, without the financing to support it, rather than to get educated the right way about wealth and acquiring it properly. Foreclosures are very high, and involve folks who bit off more than they can chew.

There's a lack of financial IQ in many of these folks!

We uphold the values we learn in school (remember that the entire faculty of the schools we've been through are employees, NOT entrepreneurs.) This is a vicious cycle and employees beget employees. Consumers beget consumers - until this chain is broken. More later...

Bad debt is the unrestrained and poor usage of credit.

I say "unrestrained" because we are so encouraged by our large merchants and businesses to slap down that credit card without much thought. It is true the credit card gives us much more buying power. Problem is, if you play with fire, you will eventually get burned.

Should I Cut Up My Credit Card?

Some debt-reduction programs advise this. I say NO!

Education and discipline is far better than destroying your credit card. Learning how to use credit is the antidote to damaging debt.

What is Good Debt?

Debt can be an asset! Here's why. If we can use debt to acquire something we know is going to produce a return on investment that exceeds the cost of the loan, we've produced an asset! It's exactly the same as turning our homes or cars into assets by the same principle.

Good debt means NOT using credit to purchase those end-user things. By all means, DON'T use your credit card to purchase FOOD and other consumables!

If you want to purchase these things, create assets and pay for them that way!

That's what the rich do.

Use CREDIT to purchase things that will produce an income for you, most notably, passive income, such as an apartment house. Anything that you can purchase with credit that you can turn around and make an income that exceeds the debt makes that debt an asset!

It's ultimately not taking money out of your pocket - it's putting money in there.

Furthermore, Use your assets to create MORE assets! Convert what part of these assets to keep up with liabilities as needed. Wealthy folks never pare down their assets. The use the income that comes from them to pay liabilities, maintain the existing assets and create more assets.