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Debt Mindset: Good Vs Bad Debt

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If you follow Dave Ramsey you will hear that you should switch to only cash and you don’t need a credit score. All debt is bad debt.

But I want you to ask a question. How did Dave Ramsey afford to build the several custom homes he will speak about? I can tell you that if you just follow Dave Ramsey and eliminate all debt and switch to cash you will have a zero credit score.

Why would not having a credit score be a bad thing? Well without one you will have a very hard time buying a home. But more importantly, you destroy the ability to invest in rental properties.

You see having a proper debt mindset will allow you an avenue toward early retirement.

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These ideas are based on my personal experience and opinion and should not be considered professional financial investment advice. Furthermore, the ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Text overlay "Debt Mindset Good Vs Bad Debt" with a man in a business suit pulling out a stack of $100 bills from his suit jacket

Debt Mindset: Good Vs Bad Debt

Debt is not always a bad thing. In fact, debt can be a tool that helps you reach your financial goals. The key is to have a good debt mindset.

Good debt is debt that is used to purchase something that will increase in value over time. For example, a mortgage on a home or an investment in a business. Good debt can also be used to finance an education or start a family.

Bad debt, on the other hand, is debt that is used to purchase something that will lose value over time. For example, credit card debt for unnecessary purchases or a car loan for a vehicle that depreciates quickly. Bad debt can also be used to finance risky investments or gambling debts.

The key to success with debt is to remember that it should be used as a tool, not as a crutch.

The Difference Between Good And Bad Debt

I want to ask you a question that will determine if you have a rich mindset or not.

If I was able to loan you money at 0% interest how much would you want to borrow from me?

I hope you would say “as much as you will let me have for as long as you would let me have it.”

You see that is a great example of good debt. No interest, could be years before you have to pay it back. You could take that money and play it safe and invest in bonds and make at least 2% on it.

Or you could invest that money in the stock market for much better returns.

Or buy rental properties and use the rent money to pay back the loan and have cash flow from rents coming in.

The point is debt can be good or bad depending on what you do with it. If you use credit cards and are spending 20% – 30% interest payments to a bank for years on end that that is bad debt (but good debt for the bank).

You see every debt is both good and bad. It is good for the one that is making money from the debt and bad for the one that is losing money on the debt.

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How The Rich Make Their Money

Have you ever wondered how the rich make their money?

Well they start by working a traditional job (well 80%+ do) and then they build assets over time until they are wealthy.

There are different types of assets that literally anyone can get into. Some are very active. Some are 100% passive. Most are what I call passive-ish. Lots of work at the beginning and then almost none later.

Click here to read From passive to active income.

The Benefits Of Good Debt

One of the best ways an average person can obtain good debt is in the form of a house. Now, this is where things can get a little muddied. During the 2021 interest rate drops, I was able to refinance my mortgage to 2.75% interest.

Then in 2022, the inflation rate rose above 8% and the bank was basically paying me to have a home from an interest rate perspective.

On top of that, as the home appreciates in value over time, then the bank is helping me to own an asset that I couldn’t possibly afford in cash.

While Robert Kiyosaki wouldn’t classify your primary resistance as an asset, and he is correct but only until you can sell it for a profit. Regardless, a home mortgage is an example of good debt if you can get it for a good interest rate.

In the fall of 2022, the interest rate is climbing every month. The home mortgages rose over 7% for the first time in decades.

If you are looking to buy a home I would wait until probably July 2023 for home prices to fall so that even if the interest rates are still high you can at least get a reasonably priced home and then could refinance later when the rates drop. But this will likely put most people out of being able to buy a home for several years. If that is you, just keep storing up cash for your down payment, and then if you find something that is cheap (like a foreclosure potentially) you may want to buy it.

Debt Payoff and Budget

If you are stuck in thousands of dollars of debt like I used to be (80k in student loans, more than 10k in credit cards and two car payments, etc.). This can help you.

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We track your income, debt, savings, and investments so that you can reduce debt and grow the other three.

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The Drawbacks Of Bad Debt

The drawbacks of bad debt should be obvious. Someone is loaning you money for a large amount of interest and you are paying it. I have spoken about how to get out of bad debt in many of my posts but will recommend that you check out how to be financially independent for the basics of getting out of the bad debt hole.

How To Overcome A Bad Debt Mindset

To overcome a bad debt mindset think about all of the money you are losing because of buying things on credit that costs you money.

You are buying liabilities (things that cost you money each month) instead of buying assets (things that make you money each month). So focus on removing the things in your life that are costing you money by paying them off as fast as possible. And then use that money to buy assets in the form of investments and eventually real estate.

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Are you living your best life or are you stressed about paying the bills?

In this quick 2-page PDF, I cover 5 ways you can get your financial life back on track.

I used to live paycheck to paycheck and after years of paying off debt and maximizing my investments I am now able to save and invest more than 45% of my wife and I’s gross pay.

This allows me to live comfortably (not a crazy rich person) and sleep better at night. If you want this let me know where I can send it to you below.

Wow, you read a lot to get here. Can you do me a favor, please? Can you leave a comment if this was helpful to you or if I missed something? Alternatively, it would help me out a lot if you shared this content with those that might need to see it. Thanks, you are the best!

The Importance Of Understanding The Difference Between Good And Bad Debt

If you can leverage good debt then you will be able to accelerate your wealth much faster. This will allow you to retire early, or give money to organizations you believe in, or fund the career of your dreams. There are so many options in life when you have removed as much bad debt as possible and are leveraging good debt.

When I say this I don’t want you to take out a personal loan to purchase cryptocurrency. I prefer to use bank loans for mortgages but not during this time with overpriced inventory and record-high interest rates.

Picture of Dwight Scull sitting in his gaming chair in his office surrounded by board games and Role Playing Books.
“Marriage is hard. Divorce is hard.
Choose your hard.
Obesity is hard. Being fit is hard.
Choose your hard.
Being in debt is hard.
Being financially disciplined is hard.
Choose your hard.
Communication is hard. Not communicating is hard.
Choose your hard.
Life will never be easy. It will always be hard.
But we can choose our hard. Pick wisely.”

About Dwight Scull

I have been married to my wonderful wife, Rebecca, who puts up with me since 1999. I am a proud father to my Gen Z, son, and daughter-in-law. Grandfather to my favorite granddaughter who was born in 2021.

I lost my mom, father-in-law, and 12 others in 2013 and was DEEPLY in debt. I started reading and watching all the financial info I could find.

I chipped away at my debt and went from a negative $105k net worth having one home paid off, no credit card debt, and saving/investing 45%+ of my gross salary.

I used these daily habits to lose 100 pounds and keep it off.

I believe that you can overcome any challenge you face if you just take small daily actions and be consistent with them. It is how you will be financially successful.

Join my free Facebook group to get a ton of free resources to help you get out of debt, learn how to invest your money and work toward having the option of retiring early.

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