Darrin and Jayla discuss the difference between good and bad debt (like credit card debt) in part four of their series.
Not all debt is bad.
What is good debt?
Low-interest debt that helps you increase your income or net worth are examples of debt that is good. But too much of any kind of debt — no matter the opportunity it might create — can turn it into bad debt.
Medical debt, for example, doesn’t neatly fall into debt is good or debt that is bad category. It’s an expense that’s largely uncontrollable and often doesn’t have an interest rate. You have a few ways to pay off medical bills.
What is bad debt?
Expensive debts that drag down your financial situation are considered bad debt. Examples include debts with high or variable interest rates, especially when used for discretionary expenses or things that lose value.
Sometimes, bad debts are just good debts gone awry. Credit card debt is an example of this: If you have a high-interest credit card and pay off your balance each month, no problem. But if high-interest credit card debt builds up, you could be in trouble.
Student loan debt is investing in yourself so that is good debt. Credit card debt is not good debt. Paying off the credit cards with the highest balance first is a good suggestion. Pay the minimum of the other cards until the high balance is paid off. Then move on to the next highest balance card and repeat the process.
By paying off your bad debt you will be put in the position to get better offers and rates.
In the realm of entrepreneurship, Darrin and his team at Southern Bancorp are huge proponents of supporting entrepreneurs. Understanding the level of risk you are willing to take as an entrepreneur is important to know. You can have a full-time job and begin to dabble in entrepreneurship and investing. Start by maximizing your company’s investment opportunities such as 401K. Next, look towards opportunities that appreciate and not depreciate, such as real estate.