In this episode, Knoxville’s CFP, Justin Goodbread gives a CERTIFIED FINANCIAL PLANNER’s look into personal and business debts. He tells you which debts are “good,” which are “bad”, and which are just plain “ugly.”
The most common personal debts are mortgage debts and education loans. In essence, they’re good debt. They can help you establish credit or build assets. However, if you can’t afford the monthly payments, then they’ll hurt your credit rather than helping it. While I see mortgages as a type of good debt, try to owe 80% or less on your home loan.
Car loans fall into what I call “bad” debt. People don’t NEED a $40,000 brand new vehicle that will strap them financially month-to-month. Credit card debt also falls into the “bad” debt category. Stay away from that if at all possible unless you pay the monthly payments in full.
Other personal debts are just plain ugly, folks. Judgement debts against you from creditors or tax liens you haven’t paid to the IRS get really ugly. They hurt your credit, and the creditors have the right to take money directly from your accounts. They have the right to seize your assets.
Now, on the business side of things, there can be good, bad, and ugly debt as well. Maybe you, as a small business owner, borrow money to acquire a business, and you have acquisition costs. Perhaps you borrow money to purchase real estate upon which to build your company. Those loans aren’t bad as long as you’re paying for them in a timely manner.
On the other hand, business credit card debt or business lines of credit can be extremely bad if you can’t afford to keep up with the monthly payments, or if you don’t pay back the money you borrow.
Finally, equipment loans fall into the “ugly” debt side of things. Equipment loses value rather than gaining it, so it’s not an asset that will make you money back. Be very wary of this type of debt.
Now, if you’ve already taken on “bad” debt, or you have “ugly” debt, there is hope. Follow me as I give you tools to decrease your debt, and read my blogs on personal debt at https//: heritageinvestor.com and on business debt at https://financiallysimple.com