While you’re walking around this Halloween with your little ghost or goblin, you might be spooked by something watching you and following along in the shadows.
No, it’s not a monster.
From the time we graduate from high school through our twenties and into our high-earning years, debt starts to pile up and follow us around. From mortgages to loans to credit cards, debt is a reality we all face.
And that’s not even taking into consideration the circumstances life throws at us, such as illness, taxes or sudden unemployment.
But the truth is we don’t have to be afraid any more. The monster can stay in the shadows.
Good Debt vs Bad Debt
“Good debt helps you generate income and increases you net worth.”
That’s Lisa Smith over at Investopia. For Lisa, acquiring debt is a necessary element of adult life because it improves us. Things like education and certifications required by certain careers cost money up front, but they make us more qualified to earn more later on.
Small business owners use debt to kickstart their companies. Entrepreneurs eventually want to make money, but it’s not going to happen overnight.
And what about living? Unless you’ve received a large inheritance, taking on a mortgage is the only way to buy a home and provide for your family. There’s nothing wrong with owing money when you’re living a comfortable life within your means.
There are always risks when it comes to good debt - markets fluctuate, jobs come and go in specific industries - but weighing the risk is a tangible process to undertake, particularly if you have help.
Bad debt can certainly bare its teeth at you from time to time, but even then you’re in control. Vehicles, consumables like clothing or credit cards can be frightening if you don’t understand interest rates or how these items impact your day-to-day life.
Freeing Up Cash Flow
“Debt consolidation is a very useful tool in every budgeter's tool belt.”
That’s Lisa Smith again. Consolidating payments puts people on a clear path toward financial independence. It’s an exit strategy, a plan to get out off the red while still being able to live your life.
This is often done by combining interest payments so the actual payment made on overall debt is minimized. By doing this, the debt becomes manageable as long as you’re able to stick with the rest of your budget. This frees up cash flow so you can keep up with your bills, buy groceries and maybe get out of the house to hit the movies from time to time.
Caging the Beast
Debt is only scary when you run, because it never gets tired. If you confront your demons and use the right weapons, debt will shrink back into its cage, and it will be up to you to keep it there.
That’s all we really want, right? Control and independence? Well, with the right plan, your debt is no match for your cunning.
And if you need someone by your side when the lights go out, give us a call.
And be safe out there this Halloween!