Good Debt And Bad Debt - How To Manage Money

By: Brandon Schmid Click author's name for more of his/her articles

For a lot of people personal debt can't be avoided. Even the most wealthy people in the world have difficulties with their finances. The vital thing to remember are the differences between good debt and bad debt. This article will help you understand how to manage money and ease your way into becoming free from debt.
Some quick tidbits about debt that are frightening:
Around half of every American spends more than they make each year.
The typical household has more than $10,000 in credit card debt.
In the past 10 years, personal bankruptcies have increased by 100%.
What is Good Debt?

Good debt is an investment. Good debt like home mortgages, student or business loans are almost always a wise choice. Why? Because they normally do not lose money. obviously the housing market crash in the U.S. doesn't back up that comment, but keep in mind, most of those affected were head over heels into 'bad debt' before the economic downslide and were unable to afford the 'good debt'. Without question, in five years almost all homes will go way up in value.
College and Business loans are another type of good debt. They are an investment on your future and if properly researched they should pay for themselves over and over. Knowing good debt and bad debt will teach you how to manage money.
Good debt also includes things that you NEED but can't afford right away. In these instances be sure you can make all monthly payments prior to taking on this type of debt.
What is Bad Debt?

Bad debt is making purchase on something that loses value or will cost you more cash in the future.
"When you buy something that goes down in value immediately, that's bad debt. If it has no potential to increase in value, that's bad debt." (Eric Gelb, CEO of Gateway Financial Advisors and author of "Getting Started in Asset Allocation").
Other forms of bad debt would be to buy things aren't necessary and can't pay for. On top of that, many people buy these things on their credit cards and wind up being un able to pay off the balance in full. If you borrow cash to buy items like vacations, clothes or entertainment and can't pay the balance of the credit card you will probably pay A LOT more for that item than it's actually worth.
How Do I Eliminate Debt?
Good debt and bad debt should not co-exist if you know how to manage money. There is an easy way to get rid of bad debt quickly so you can start to chip away at the good debt. This may seem like it's against all logic but try this: pay off debt of lowest value first. This is an excellent way to create goals, see the results and become more motivated to eliminating your bigger debts. Keep in mind you must maintain the minimum payments on all other debts. You will see the results and be ever closer to being free of debt.
Something we all say is: 'I wish I was debt free." For most that statement is just a wish. For others it feels like an unachievable dream. For everyone, becoming debt free is a reality. You can be debt free! It is important to understand what causes debt, what solutions are out there in handling debt as well as knowing the difference between good debt and bad debt. You can start making that debt free wish into a debt free reality.
I referenced msn moneycentral for some information and the quote for this article.

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About The Author: You can pay off your debts and save money at the same time! Say goodbye to your boss forever! A blog that will show you the secrets of the wealthy: www.howtomanagemoneytips.com Get a free budget sheet, net worth calculator, tools and more: www.howtomanagemoneytips.com/ebook.html