Do you want to get out of debt fast? We’ve often covered how to get out of debt, but we rarely discuss the different types of debt.
We’ve all heard about the difference between good debt and bad debt. We’ve also all looked into the argument of good debt vs. bad debt and attempted to decipher what category certain purchases fall under. We know that student credit cards can be bad. We all also assume that buying a home makes sense.
Seth Godin touched upon this topic recently, when writing about how consumer debt is not your friend and how to get out of debt:
Dave [Ramsey] has spent his career teaching people a lesson that many marketers are afraid of: debt is expensive, it compounds, it punishes you. Stuff now is rarely better than stuff later, because stuff now costs you forever if you go into debt to purchase it. He’s persistent and persuasive.
As a result, I want to open up this discussion and look at common purchases as to where they would fall under and how you should pay off debt fast.
Should you get out of debt fast by paying off your car?
Are you better off buying that used car with cash or that brand new car with credit?
There’s the argument that you need a car for the following reasons:
- 1. Get around town.
- 2. For job reasons.
- 3. For job interviews.
My only comeback is this: do you really need to go into debt for that new car? I’m not telling you to take the bus, because that would just be lazy advice. The decision you need to make revolves around the thought process of how valuable is it for you to go into debt to acquire a new vehicle? Will a used car not be suffice? You don’t want to kill your finances because of a car. If filing bankruptcy becomes a consideration for you, then you should consult a professional for your options.
Your home/primary residence will make it difficult to get out of debt fast.
You shouldn’t view your primary residence as anything more than a shelter/place to live. If you start to view it as an investment, you will be really disgruntled during a recession, when home prices sharply decrease in value. Not only will lower home prices discourage you, but the realization of how much money goes towards interest and other related expenses, will definitely depress you.
On the other hand, your home may greatly appreciate in value and this increase could offset all of the other costs. Unfortunately, this is a optimistic and rare scenario.
There is no right or wrong answer in this discussion. There will be those that argue that rent is, “throwing money away,” and there will be those that urge you to wait until you have enough money to purchase the home with cash. At the end of the day, this will likely be the most important decision that you’ll ever make in your life. Put in ruthless amounts of research before you ultimately make your decision.
Most young people don’t even think twice before acquiring debt to pay for their college education. I’m not saying that this is right or wrong, it’s just what happens.
One thing you need to consider is how much more valuable you will become with your Graduate Degree/new education. If you plan on starting your own business or working for yourself in any way, shape, or form, do you really need to go into debt for more education?
Once again there will be those that leverage the debt required to obtain a Graduate Degree and use it to score a 6-figure salary. There will also be those that use debt to pay for an education that will simply never benefit them.
Where do you realistically see yourself 5 years down the road, once you’ve used debt to expand your resume?
One more thing to consider is that you can get money for college to graduate debt free.
Before you learn how to get out of debt it’s important that you understand the different types of debt and why you are where you are.
What would you guys consider to be good debt? What would you consider bad debt? Do you even think there’s a such thing as good debt?