How to Eliminate Bad Debt

In order to set the stage for your success, you’ll have to eliminate any bad debt you may have head-on.

You may be asking yourself, what is bad debt? Let me explain.

Good debt is incurred when you purchase an asset that produces cash flow or is an investment that will pay off down the road. Bad debt is incurred when you make a purchase that does the opposite and makes you less wealthy as time goes on.

Watch the video below for tips on how to eliminate bad debt and increase your wealth.

Borrowing Money is Not a Bad Thing

If you can borrow money at a low interest rate and use it to earn a higher rate of return, go for it! That’s good debt.

If the money you are borrowing is at a high-interest rate, and you are using it to buy things that will not grow in value, stop now! That’s bad debt.

Eliminate Bad Debt Before Investing

Bad debt is usually accompanied by a huge interest rate. Paying off the bad debt prior to investing yields a 12-24% return, because you aren’t paying that in interest anymore. That is why it is important to pay off the debt before investing.

Allocate Responsibly

I’ll leave you with this thought: “Being a successful investor involves analyzing every aspect of your financial situation.”

Your job as an investor is to allocate your capital in a responsible and rational way. Eliminate your bad debt and see the payoff quickly. What other investing terms or concepts do you want me to explain in more detail? Leave a comment below and I’ll be sure to follow up with you.

I’ve created a 14-day financial challenge to help you get rid of bad debt and get your finances on track. Click the button below to learn more.

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Phil Town is an investment advisor, hedge fund manager, two-time NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.
  • lifeisgood123

    I’m just starting with your stuff and I have a question. I was in Montreal mars 29 and we will meet 14-15-16 april. If I have 1 credit card at 18% (7000$), 1 credit card at 12% (2500$) and marge at 8% (25000$). I understand that I need to pay my 18% credit card first. But I want to start investing (stockpiling). What do I do? I can’t wait 5 years before my debt is paid before starting. What are my options? Is there a way to make money with investment and payback my debt? or like you say 18% I can’t beat that anyway. thanks

    • Mickey Miller

      THink of it this way, by paying off debt first you are investing in not having an 18% annual loss. This is the key to Rule 1, don’t lose money. To keep paying that amount year after year to invest in other things is the same as losing money in interest month after month and never goes away if you carry a balance. The best thing to do is kill that debt as quickly as possible before you do anything else. Don’t make the bank rich.