Rule #1 Finance Blog

With Investor Phil Town

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.

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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.