Mastering debt management is a necessary aspect of making your money work for you. A good place to start on your road to Financial Freedom is learning debt management and to begin you have to know the difference between good debt and bad debt. First let me give you some definitions:
Good Debt: Any debt where the cost of the debt will be surpassed by the profits that are made by whatever it is that you took on the debt to buy is good debt.
Bad Debt: Any debt where the cost of the debt will amount to more than the profits that will be made by whatever it is that you took on the debt to buy is bad debt.
It 's that simple. When you are looking into taking on debt do not just be mesmerized by whatever it is that caught your eye. Debt management mandates that you have to run the numbers. Yes, you can finance that car and drive it off of the lot right now, but is it worth it to pay $40,000 for a $19,000 car? Even if you have to use …show more content…
I ' m talking to the people that go out and buy $60,000 dollar cars because they wanted something "reliable". That is the reason that most people give for why they went out and spent too much money on a car. In case you didn 't know Mercedez is not the only manufacturer that makes quality cars. Sorry to burst your bubble. Just because you need a car does not mean that you have to spend foolishly on one. My formula to determine whether or not your car loan can be considered good debt is simple. I call it the 5% rule. Your monthly car payment should not be more than 5% of your monthly income. For example if you make $50,000 a year, which comes out to approx. $4166 a month, then your car payment should be no more than $208.33 a month. If your car payment is 5% or less than your income then you have made a savvy investment and that car loan is a good debt. If your car payment is any more than that then you went above your means and you have taken on bad
Good Debt: Any debt where the cost of the debt will be surpassed by the profits that are made by whatever it is that you took on the debt to buy is good debt.
Bad Debt: Any debt where the cost of the debt will amount to more than the profits that will be made by whatever it is that you took on the debt to buy is bad debt.
It 's that simple. When you are looking into taking on debt do not just be mesmerized by whatever it is that caught your eye. Debt management mandates that you have to run the numbers. Yes, you can finance that car and drive it off of the lot right now, but is it worth it to pay $40,000 for a $19,000 car? Even if you have to use …show more content…
I ' m talking to the people that go out and buy $60,000 dollar cars because they wanted something "reliable". That is the reason that most people give for why they went out and spent too much money on a car. In case you didn 't know Mercedez is not the only manufacturer that makes quality cars. Sorry to burst your bubble. Just because you need a car does not mean that you have to spend foolishly on one. My formula to determine whether or not your car loan can be considered good debt is simple. I call it the 5% rule. Your monthly car payment should not be more than 5% of your monthly income. For example if you make $50,000 a year, which comes out to approx. $4166 a month, then your car payment should be no more than $208.33 a month. If your car payment is 5% or less than your income then you have made a savvy investment and that car loan is a good debt. If your car payment is any more than that then you went above your means and you have taken on bad