Consumer Debt: The Good, the Bad and the Ugly

The word “debt” has as much appeal as the words, “tax audit, root canal and we have to talk.”

Consumer credit card debt has become part of America’s fabric, skyrocketing from $8 billion in 1968 to $880 billion in 2006, according to the Federal Reserve Bank. To compound the problem, the average interest rate for a standard bank card topped a whopping 19 percent in March, according to Cardtrack.com.

But not all debt is created equal. When used properly, debt can also be the passageway to building wealth.

Debt gets a bad rap in many cases, and rightfully so. But that’s bad debt. Good debt is something entirely different and how you accumulate and use it can mean the difference between making a tremendous amount of money and living paycheck to paycheck.

My latest book, “How Come That Idiot’s Rich and I’m Not,” will address in detail the topic of good versus bad debt.

Bad debt is simply something that goes down in value once it’s purchased. And Americans are buying into a lot of it, according to the most recent government statistics. Falling prey to an unprecedented marketing campaign by credit card companies who sent out more than 6 billion credit card offers in 2006, the average household revolving debt is expected to hit the $10,000 mark this year. And an overwhelming amount of that is bad debt.

Good debt, on the other hand, is an investment that creates value, like real estate, home mortgages, and business and student loans. If you buy a car, clothes or a toaster with a credit card, the value goes down the second you purchase it, making it bad debt.

Bad debt can take a tremendous toll on people, but the worst thing you can do to yourself is stress out about it. The smartest thing you can do isn’t rocket science. You should make a list of assets and liabilities. Then make a plan to pay off the bad debt and a plan to acquire the good debt.

About the Author

Robert Shemin, JD, MBA, and Wall Street Journal bestseller, who was once considered the “least likely to succeed,” is a multi-millionaire who speaks to hundreds of thousands yearly, regularly sharing the podium with such financial luminaries as Donald Trump, Robert Kiyosaki, David Bach, Suze Orman and Tony Robbins. Shemin has worked with high-net-worth individuals for Goldman Sachs, helped create four companies, and been involved in over l,000 real-estate transactions. Find out more about Robert at http://robert-shemin.com.