By definition, debt is something, usually money, that is owed or due.
Before I throw my two cents on debts, I want to emphasize why it should be the second step of our wealth program, just after protection.
Let's take the example of a normal family that live in a nice house and drive a nice car. Those two have been bought with a loan from a bank. If something unfortunate strikes the bread winner, the rest of the family will have to shoulder the remaining balance of the house and car. That's where the "protect your income" step comes to help. Since your income was protected in case of a mishap, the family can use that money to pay the amortizations of any debt the family owns.
Now there are two type of debts. Robert Kiyosaki, best-selling author of the book Rich Dad Poor Dad, mentioned that there are good and bad debts. I won't explain that further but I'll make my own type of debts: the one that is avoidable and the one that is hard to avoid.In the hard to avoid category, we have house and car loans. Those are hard to avoid because if you don't take a loan to cover them, it will take you too long to save in order to acquire the house or the car.
In the avoidable category, it's mostly credit card debt. It is debt that originates from you buying stuff that you couldn't afford at the time you bought it.
Getting out of debt should be your first priority so that you can focus your money into your investment (for your retirement mainly).
In order to get rid of your "hard to avoid debt", the solution is quite simple: accelerate your payments. Instead of paying the normal amount for your amortization, just increase it as much as you can so that it will be paid off as soon as possible.
For your credit card debts, first of all, you have to stop spending more than what you can afford. Please remember that the credit card interest is really really huge. What you owe the credit card company in interest is so big that it's almost a scam. So you have to stop that right now. With the credit card debt you have, consolidate what you owe into a bank loan that gives you a lower interest and will help you pay it off faster. When you get that new bank loan, use that money to pay off all your credit cards and get rid of your cards so that you won't be tempted to use them anymore. Maybe just keep one for your online payments and in case you often travel abroad.
I hope I helped you realize the importance of getting rid of your debts and why it should come as Step 2 of our program.
If you want to know more about this topic, you can get a free coaching meeting with one of our financial coach. Just email us at pinoyfinancialcoach@gmail.com
Photo Credit: By Reza luke (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
In the avoidable category, it's mostly credit card debt. It is debt that originates from you buying stuff that you couldn't afford at the time you bought it.Getting out of debt should be your first priority so that you can focus your money into your investment (for your retirement mainly).
In order to get rid of your "hard to avoid debt", the solution is quite simple: accelerate your payments. Instead of paying the normal amount for your amortization, just increase it as much as you can so that it will be paid off as soon as possible.
For your credit card debts, first of all, you have to stop spending more than what you can afford. Please remember that the credit card interest is really really huge. What you owe the credit card company in interest is so big that it's almost a scam. So you have to stop that right now. With the credit card debt you have, consolidate what you owe into a bank loan that gives you a lower interest and will help you pay it off faster. When you get that new bank loan, use that money to pay off all your credit cards and get rid of your cards so that you won't be tempted to use them anymore. Maybe just keep one for your online payments and in case you often travel abroad.
I hope I helped you realize the importance of getting rid of your debts and why it should come as Step 2 of our program.
If you want to know more about this topic, you can get a free coaching meeting with one of our financial coach. Just email us at pinoyfinancialcoach@gmail.com
Photo Credit: By Reza luke (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
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