Basic Steps to Reduce Debt
Submitted by Larry Frank Sr. on Tue, 08/27/2013 - 12:00pm
Most people pay off debt the way they...
card use or other sources of loans for something you paid for and got
little gain from. Credit cards – and especially keep...
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Advice iq basic steps to reduce debt


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Advice iq basic steps to reduce debt

  1. 1. Basic Steps to Reduce Debt Submitted by Larry Frank Sr. on Tue, 08/27/2013 - 12:00pm Most people pay off debt the way they swat flies: Willy-nilly and at the first bug that lands or bill that arrives in their mailbox. Debt comes in different forms, however, and you should realize what to pay first. Most people also think there are two kinds of debt. But good debt really comes in two forms and I make a distinction. Here are three kinds of debt: Good Debt: CNNMoney’s Money 101 lumps together what I call good debt and necessary debt. Others see the costs of small-business ownership, real estate and even investing as good debt. Small businesses can fail and market holdings tank. A home mortgage is the only good debt in my opinion, assuming the home value appreciates over time and offsets ownership expenses. Even that’s far from a given now in many devastated housing markets. Necessary Debt: I agree with Money 101’s calling car and college examples of necessary debt: You need transportation to get to your job and make money, and you need money for education to improve your skills and make more money. I categorize these as necessary to avoid the notion that your kind of debt doesn’t matter. It does. Too much transportation and you overpay to park that expensive transportation – your car –either at home or at work most of the time until the car becomes a bad debt. Also, too much education and your job may fall short when it comes to paying off tuition debt. At an extreme level relative to your earning power, either or both of these debts crowd out other living expenses. Necessary debt easily becomes bad debt if you go overboard. Bad Debt. This means paying today for yesterday’s – or even older – consumption. Nothing but bills come in anymore for such debts as credit
  2. 2. card use or other sources of loans for something you paid for and got little gain from. Credit cards – and especially keeping a debt balance on one – come with interest rates often exceeding rates on consumer loans, and payment schedules ensnare debtors in maximum costs. Other examples of bad debt: clothing, vacations, fast food, groceries and gasoline, all of which you commonly buy with borrowed money off a card. Everybody needs a vacation and likes to eat out. But pay those expenses out of money you have now without piling up more debt you have to pay for anyway out of money you make eventually. For more help, CNNMoney also offers a debt-reduction calculator. Your priorities for reducing debt start at the bottom of this article and work up. First attack bad debt, then maybe necessary debt – especially if you did go overboard on spending for transportation or education – and finally possibly pay down the mortgage. Attack that last debt, incidentally, only if you are saving enough for retirement. No one erases all debt in every aspect of life, or could hope to. All the more important, then, that you know the kind of your debt and what to go after first. Follow AdviceIQ on Twitter at @adviceiq. Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning. He also writes Better Financial Education. AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily. Topic: Personal Spending Consumer Items Debt Problems