Dealing with Confusing Personal Finances - Good Debt and Bad Debt

 One reason why you find so much conflicting advice out there is because personal finance is personal. There is no one-size-fit-all solution.

You may get a lot of data and math, yet when the numbers force you to do something that lies outside your comfort zone; it is not a good solution.

So what can one do? How can one make sense of numbers and align our habits and calculations with the official math? This is something we shall try to answer in this article.

First of all, let’s talk about…
Good Debt and Bad Debt

 There is no such thing as ‘good debt’, no matter what experts say. There is nothing called good debt even if you use it to pay for college or to buy a house. Dave Ramsey, one of the most well-known financial experts, is one who is strictly against this idea that debt can be ‘good’.

At the other end of the spectrum, Robert Kiyosaki, the writer of the well-known book Rich Dad Poor Dad, says that the wealthy use good debt to grow their financial worth. They use it to invest in cash flowing assets and use money from investors and banks.
Debt Elimination

Financial experts don’t just disagree on the question of debt, but also offer different advice on debt elimination and debt management. However, here are two most common debt elimination strategies.

    Debt Stacking Method: In this strategy, you start paying off your debt that has the highest interest rate first. As you can understand, many experts swear by this strategy as it enables you to free up cash faster. For instance, if you have several credit cards with debt, start paying off the one that has the highest interest rate.

    Debt Snowball Method: Other financial experts tell you that you tackle that debt first that has the lowest balance. It is believed that a system that is front-loaded with rewards is good for keeping one on track. Small victories keep one going.

Now, paying off those debts that have a high interest rate is certainly a smart move. However, personal finance is not always a math equation. It is also ruled by emotion, in which case the Debt Snowball Method works better. Personal finance is psychological as well.