To a borrower, bad debt is something acquired over the appearances of wealth. Dave Ramsey calls it stuffitis, which refers to things like clothes, cars, vacations, plasma televisions. The reason we call it bad debt is because these sorts of things depreciate in value and you can’t rent it out. That’s why this kind of debt creates a drain on your resources.
Unfortunately, ever-growing numbers of people are finding themselves with mounting consumer and credit card debt due to stuffitis. A 2007 report showed that the average person seeking the help of a credit counselor was $43,000 in arrears. And it’s not all just the irresponsible sorts. Even responsible people are finding themselves on the short end of the bad debt stick.
The average American household’s debt in 2007 was $2,966. In 2007 it had risen to $9,840. Now 91% of us believe debt can be controlled by disciplined spending and saving. 72% think debt is an unavoidable consequence of modern life? Do the positives of your portfolio outweigh the bad consumer debt you carry? For many people relying on the stock market, that answer is no.
What say you?
As for us at Empowered Investor, we agree that the wrong kind of debt is to be avoided like the plague but the right kind of debt may be the best investing plan ever devised for creating wealth in your life. What is the right kind of debt? Thought you’d never ask. But now you’re going to have to…wait.
Tomorrow we talk about good debt and great debt.
