When I say "good debt" doesn't exist, most people fire back with the usual responses like:
My student loans ended up tripling my income.
My mortgage provides me with a roof over my head
Investments, my business, my blah blah blah blah and one more blah for "good" measure.
These are all great things. I mean, do I have anything against people who take out student loans for a career that will help them become financially successful?
No. In fact, I did the same.
Do I have anything against people who take out a mortgage on a home that they needed, wanted, and could afford? No. I'm actually pretty jealous.
But do I have a problem with you (yeah, all of you) who say that some types of debt are good? Yup. Why? Because of the following sentence I once heard someone (AKA Preet Banerjee) say: "Calling it bad debt and good debt is like calling it good sh*t or bad sh*t. At the end of the day, it's all still sh*t."
When I tossed the question out to my internet friends, asking what "good debt" was, most of their responses were what I mentioned above.
In my personal (and charming) opinion, one of the worst ones anyone will ever tell you is "the best one" is a mortgage.
I mean yes, I'm happy for you and your home. But what makes us think we can just call that good debt?
Is it the BEST POSSIBLE investment you can make? No. Absolutely not. But is it an investment none the less? Yes.
A house is the one I could argue the most. I mean, if we're going to call anything "good debt" here (which we're not), it's the investment that increased your net worth by a lot more than this:
So maybe "good debt" isn't a thing at all. Maybe instead we should call these "good debts" investments, or better yet, side effects of bad and good investments. Because just tossing an adjective in front of the word debt is pretty easy to do.
Happy Debt: The type of debt where it's still debt but it made you happy for a split second in time.
LOOK AT ME, I coined a term.
Maybe the idea was invented by some insanely brilliant marketing agency who was trying to sell the first piece of property ever. "You know what would go great with that cave, sir? A ridiculously high mortgage." Wait a minute... who did invent the term "good debt"? I mean, where did it come from? I seriously looked/researched/crawled into the deepest darkest corners of the internet and found nothing.
Because obviously no one would want to admit that they invented the term for a sales tactic.
So let me just do as they do to us millennials, and reverse-back blame the boomers. Hey guys, thanks a lot.
Just kidding – but it does feel good to blame someone. It's all starting to make sense now.
All in all, I get it. You want a reason to justify your high-expense costs, your money mistakes, your successes that caused you struggle, your everything's ever. But can we please start just calling it what it is?
And putting the word "good" in front of debt shouldn't make people feel more comfortable to hold onto it.
Because in 2016, we take everything literally. And if I say a mortgage is good debt, people will take ownership of that debt like it's more of their baby than well, their actual baby.
Most people take on debt because they want to increase their standard of living. And guess what? There are no guarantees with debt (other than the guarantee that you have to pay it back).
There is no guarantee that you're going to invest money into a home, degree, or business, and then come out on the other side to a "YOU'RE RICH! WELCOME HOME" sign and fireworks in the shape of dollar bills. Man, my imagination is on point today.
"Are you on a laptop all day? Would keeping an excel file or Google doc file help you track your expenses easier? Would it be more convenient to keep an old fashioned pen and paper type of budget? How about keeping a running tab on the fridge so that you are tracking all expenses?
"For the few that actually look at their goals again, it’s common to revisit them only at the end of the year. This is a crucial error. As our circumstances may change day to day and month to month, so will our goals. A lot can change in twelve months, which is why I propose reviewing once a month, or at the very least every three months.
Revisiting also keeps our desires relevant. It’s helps us remember that we even have them. Ideas aren’t enough, we must execute.
As the great Thomas Edison said, 'Vision without execution is hallucination.' " -Jiu-Jitsu Finance
Increasing your income
"After you have lowered your expenses, it is time to bring in more income. There are many ways to bring in more income especially during the holiday season. Maybe your full-time gig will let you work extra hours for overtime. In addition, retail stores typically hire for the holiday season. That part time holiday gig could turn into a longer gig...
Retail jobs aren't the only part-time jobs available. There are plenty of other side hustles you can pick up right at home to make extra money like: Freelance Writing, Virtual Assistant, Social Media Management." -Financially Fit & Fab
Turn on your automatic savings
"Another no-hassle way to save is by setting up an automatic transfer to your savings account. By automating your transfer, you're making sure that you don't forget or pay your savings last–and as a bonus–automating your savings means you never "see" that money and subsequently makes it sting a little less.
Two new apps that I am loving lately are Digit (which has a cult following). It automatically transfers money from your checking account you won't miss. I also love Qapital, which has rules you can set to "save the change" from your purchases. I saved over $75 my first month of Qapital, which was really astonishing to me. Click here to give it a try." -Financial Best Life
Develop the habit to spend with cash than card
"To spend with cash is also an actionable way to get out of debt. According to the research on peoples spending with credit cards; it was revealed that those who shop with credit card are impelled to spend more on luxury items because they feel they are paying with “play or fun money”. In other words, people who shop with credit card spends more than required.
Evidently, finance advisors hold a strong stand on this. They strongly advise that people who are working on eliminating their debt should cultivate the habit of spending cash, to avoid being tempted to spend on irrelevant items." -MoneyMiniBlog
Leave your wallet in the car when shopping
"This trick is simple but impactful. When doing any kind of shopping, use cash, and only take the amount of money you want to spend in the store with you. Leave all other cash, credit cards, and debit cards in the car.
This is very powerful, especially when grocery shopping. In addition to the amount you plan to spend, you can consider bringing in a small cushion of a few dollars (in case there are hiccups at the register). You will shop (and spend) completely differently when you only have a hundred dollar bill with you versus a hundred dollar bill and your debit and credit cards.
Don’t give yourself a way to spend more money than you want to — and you won’t." -Hope + Cents
Start and maintain an emergency fund
"There is no fixed formula for how much you should have in an emergency fund. Some school of thoughts say 6 months’ worth is sufficient, some say a year’s worth. Everyone’s situation is different and as such, each strategy should differ. To start however, I would suggest understanding your spending habits, and then implementing a 3-6-9 guideline.
3 Months: If you are single without kids, renting, no car, partially dependent on parents for income or any combination of these factors, start off with a target of 3 months’ worth of expenses for a rainy-day fund.
6 Months: Married, kids under 18, own a house or condo, own at least one car, or any of these combined, the base target should be 6 months’ worth of expenses (if married, base it off the income of the highest earner).
9 months: Self-employed, freelancers, anyone with a volatile job or unpredictable paycheck, 9 months’ worth should be the benchmark." -Investment Conversations
How students should avoid the debt trap
"The easiest way to prevent yourself from falling into the debt-trap is by living within or below your means (that is, not overspending). In addition, it is necessary to do research before getting credit cards (or signing any contract to take on loan/ debt) so that you really understand how it works. As a student, you must learn to treat your credit card with respect." -Investment Conversations
Build a budget and stick to it
"There are many free apps available to help you track expenses, but I always prefer using my own spreadsheets. That enables me to have the most control over what I’m doing. I understand that being able to access your spreadsheet on your phone makes tracking significantly easier, which is why I prefer Google Sheets over Excel. You can download the Google Sheets app and pull up your expense tracker wherever you are to input a transaction or monitor your spending. By combining the expense tracker as separate tabs within the same spreadsheet as the bill tracker, you can have all your finances in one easy-to-access location." -The Budget Boy
Create an automatic savings account for travel.
"Here's how this automated system specifically works for you and your travel fund. Once it's set up, it goes like this:
-Your checking account receives income.
-The next day, your checking account automatically transfers money to a separate (different bank) savings account—aka your travel fund.
Know Your Interest Rates
If you have anything that you are making payments on every month, you need to know how much interest you're paying. Make sure you know these numbers, too. Ideally, you'll want to pay debts down that have a higher interest rate first. However, there is another school of thought out there that suggests paying the bill with the lowest balance first. I'd say either way is fine as long as you're making progress and as long as the higher interest rate stuff isn't astronomical.
Action: Look at your statements or call the companies to get your current interest rates on all monthly obligations.
Negotiate Lower Interest Rates
If, by chance, you ARE paying astronomical interest rates on any of your liabilities, call and try to negotiate a lower rate. Oftentimes, if you've demonstrated a history of paying on time, the company will work with you to reduce your rate. The only trick is, you have to ask.
Action: Know your numbers and call the companies to negotiate if you're paying high interest rates.