Money Girl How Strategic Debt Elimination Builds Wealth Faster
May 7, 2025
Discover the crucial differences between good and bad debts and how they impact your wealth. Learn strategic approaches to eliminate harmful debts while leveraging beneficial ones for financial stability. Find out about effective debt payoff methods like the avalanche and snowball techniques. Plus, gain insights into securing your financial future with life insurance and structured debt elimination steps. This episode is packed with practical tips for smarter money management!
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Understanding Good vs Bad Debt
- Not all debt is bad; some debt can build wealth by financing appreciating assets or income-generating opportunities.
- Good debts can improve finances, while bad debts typically fund depreciating or valueless purchases.
Criteria for Good Debt
- Use debt to finance assets that appreciate or increase future income to consider it good debt.
- Keep housing costs under 25% of gross monthly income, but ideally aim for 15-20% for financial flexibility.
Example of Bad Auto Loan Debt
- A car loan is usually bad debt because vehicles lose about half their value in a few years.
- However, buying used or cars that hold value can be a smarter approach when needing to borrow for a vehicle.