What is ugly debt?
- Debt that has a high-interest rate,
- Almost impossible to achieve terms,
- You are committed for a long time.
- Borrowing from your 401k is a bad financial move.
Credit card debt can be ugly debt due to the very high interest rates.
Payday loans provide an advance on your pay but the interest rates are costly.
It’s best to set money aside on a regular basis to ensure you do have money in the event of an emergency.
Discipline and consistency is key to saving and paying off debt.
Debt that is not bad.
- Debt that helps when you make a purchase that is an appreciating asset – like a home.
- A car is not an appreciating asset – but if it helps you get to work – then it is good debt because it is helping you earn.
- Consider your investment in your tuition according to the degree you are earning.
- If you are spending hundreds of thousands of dollars on a degree that only pays an average salary – then the return on your investment is not good.
When you need to take on debt.
- Need transportation to work.
- First house.
- Furniture for a new home.
Car purchase or lease.
- A car lease is like renting a car.
- Once the lease is up you have to return the car.
- The draw to leasing is low payments, but could be costly in the long run.
- You will always have a monthly payment with a lease.
- There is a warranty you can buy but this is an additional expense.
Best way to set yourself up for success.
- Pay yourself first on a regular basis.
- Create a separate emergency account.
- Saving to spend account. (down payment on a house, new car, or a household item)
- Budget to live on the rest.
Everything that you buy takes a piece of your life. So, consider what it takes from your life.