The Debt Free Lifestyle

Many people have been taught that you cannot get ahead without debt. We are also inundated with advertising telling us we can have anything we want. All we need to do is put it on our credit card.

We have become an impatient society, we want it right now. We have lost the ethic of working for what we want.

It is not how much money you make; it is what you do with it. By living without debt you can actually have a higher income since you are not paying out interest, you are actually getting paid interest on invested money.

All debt is not created equal. We will classify them as good debt and bad debt.

To simplify the classification we will say that good debt is a loan for something that you could sell at any time and repay the debt. This narrows down good debt to a home loan and possibly a home equity loan.

A bad debt, of course, is a loan on anything that will lose value.

Let's take a look at some debts that we would consider bad debt.

Home equity loans are in the gray area. They could be considered good debt if they are used to repair or improve your home, but you would be a lot better off to just save up the money for the project. Home equity loans become bad debt when used for purposes other than home improvement or maintenance. In other words a bad home equity loan is for anything that does not add to the value of your house. Do not jeopardize your home by taking out a home equity loan on unnecessary items.

One possible good use for a home equity loan is when the interest rates are low. You can use a home equity loan to refinance your mortgage. Home equity loans generally have lower costs than conventional home loans.

We consider school loans bad debt. If you finish school, get a good high paying job and then attack the loan like mad, a school loan may work out. The problem is that there are too many things that can go wrong. At best, even if you do graduate and get a good job there are always a lot of other expenses at this time in ones life. You are really behind financially when you start your working life in debt.

Auto loans are bad loans that have become common practice to us. We pay interest on a vehicle that will only be worth one half of its original purchase price in five years. Lately it has also been common for us to borrow more than a vehicle is worth. We can trade a car in that we still owe on, and roll that owed amount over into another vehicle. This gives us a loan amount that is higher than the value of the car that we drive away. We have lost our capacity to say NO.

Co-signing is a bad debt that usually and unfortunately involves family. If someone cannot qualify for a loan at a regular lending institution, they should not get a loan. The fact that they can't qualify for a loan elsewhere should tell you that they are a huge risk. Use this opportunity to teach them how they can get what they want by working harder for it and delaying the purchase.

If you want to get off of the debt treadmill, you must run as far away from debt as you can. You cannot use debt to get out of debt. Even if you do, you have not changed your habits; you must change your lifestyle.

John Cook is family oriented and likes to help people get off and stay off the debt treadmill and secure the financial future of their family. You can read more about securing your families finances at his website http://www.financeforfamilies.com.

In The News:

KY3
Gentler Tax Laws Urged on Debt Default
New York Times, United States - Jan 7, 2009
Congress has already provided some debt relief to homeowners through the Mortgage Forgiveness Debt Relief Act of 2007, which exempts from taxes any debts ...
IRS should help some delinquent taxpayers, report says Salt Lake Tribune
IRS changes offer relief to delinquent taxpayers USA Today
IRS to cut struggling taxpayers a break Columbus Dispatch
Arizona Republicall 300 news articles

US CREDIT-US banks face higher capital needs on CDS change
Reuters - 4 hours ago
Credit default swaps are used to insure against a borrower defaulting on their debt or can be used to bet on a company's credit quality. ...

CEP News
What debt bubble? Treasury easily sells new 10-year notes
Los Angeles Times, CA - Jan 8, 2009
That should be a relief to President-elect Barack Obama, who is pushing Congress to approve a huge spending program to jump-start the economy. ...
Fed Focuses on Consumer, Corporate Loan Rate Spreads Bloomberg
Tide turning for treasuries? FT Alphaville
all 492 news articles

Javno.hr
Citi backs mortgage relief plan
BBC News, UK - 20 hours ago
Opponents say giving bankruptcy judges the power to erase mortgage debt would increase costs for future homeowners. A similar proposal failed to win ...
Citi to support novel attempt at mortgage relief? FierceFinance
Citi backs foreclosure prevention plan CNNMoney.com
Citi Throws Weight Behind Cram-Downs Housing Wire
International Herald Tribune - USA Todayall 624 news articles

Emerging Markets-Bonds up with Treasuries, stocks down with data
Reuters - 2 hours ago
There is a slightly better tone around emerging markets and it is being reflected in the fact that external debt is holding up fairly well," he said. ...

WJBF-TV
Mortgage rate relief might not last long
Reuters - Jan 8, 2009
The Fed has also embarked on a program to buy up to $100 billion in unsecured debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks in a move also ...
2008: Year of the Bailout Dakota Voice
General Sessions Civil Court To Close Friday Memphis Daily News
all 571 news articles

Daily Mail
Fiscal Fitness ’09: One Phone Call, $198 in Debt Savings
Motley Fool - 5 hours ago
Got credit card debt? Relief is just a phone call away. The strategy is simple: Call your credit card company and sweet-talk the customer service rep into ...
Call to switch as credit cards shun rate cut Sydney Morning Herald
all 50 news articles

Norway cancels Liberia's debt
Norway Post, Norway - Jan 8, 2009
This, together with other debt cancellation, will make Liberia’s debt manageable. The debt relief package for Liberia is part of the Heavily Indebted Poor ...

New Program From Think Debt Relief Offers Help for Those ...
MarketWatch - Dec 18, 2008
The new debt settlement program from Think Debt Relief is designed to help consumers with $10000 or more in unsecured debts settle those debts in as little ...

Overture board, city defend closed-door meetings on debt
Capital Times, Wisconsin - Jan 8, 2009
Carto also clarified in his statement that one element of the proposed debt relief plan -- selling the Overture Center to the city, MCAD or another entity ...
debt relief - Google News


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