The Truth about Good Debt And Bad Debt
The Truth about Good Debt And Bad Debt
Is debt actually something that is part and parcel of our economic existence?
Let's take a look at what debt really is. It's defined as one owing something to another or the condition of owing. Why do we get into a condition that we owe someone else money? It is terrifyingly simple.
We spent more than we earned.
Money is earned by delivering a valuable product or service in which someone has given you something valuable in return. When you operate on cash, you earn the money first then spend it on the things you need and want. When you operate on credit, you spend the money on stuff first (plus the interest) and then try to figure out how to earn it.
It seems backwards to me but the average household is in over $8000 in credit card debt. This is what is considered "normal", yet it is a catastrophe. This logic has seemed to escape the average American household (and the governmentthat pillar of frugality and thrift).
Good Debt vs. Bad Debt
Let's look at the two types of debtthe good kind and the bad kind.
The good kind of debt is called leverage or "secured" debt. This is when debt is secured against an asset such as a house, investment property or business. It allows someone to put a small down payment of their own money to control an asset of greater value.
The key here is that one must earn a greater return on the asset than it costs in interest so that profitable leverage actually occurs.
Many people propose that leverage should be used against one's personal residence. I personally do not. A house is not an income producing asset and actually costs a lot to maintain. It's a place to live. Paying six figures of interest over a lifetime to live in one doesn't really make much sense to menever mind what the government and the accounting profession says. Besides, not having a mortgage frees up your cash flow, and your options.
The other kind of debt is the bad stuff. This is consumer debt such as car loans, personal loans, credit cards, etc. This is the "unsecured" debt that must be repaid from your future income-producing ability. Most of this debt is from purchasing items that depreciate in value plus the added cost of the interest on those expenditures. Now it doesn't take a PhD in mathematics to realize that it is impossible to get ahead financially by continuing to pay more for things than what they're worth.
This will kill you.
Say that you have $10,000 on a credit card and you make $10,000 a month in gross income. How much do you have to earn to pay off that balance? Well, it's a lot more than $10,000 since you have to pay interest, taxes and other expenses. So, let's be charitable and say it will take 2 months, presuming you don't spend any money on anything else.
That means that you have already consumed the value of the product or services you have yet to produce. It means that you wanted or needed whatever you charged on your credit cards so badly that you were willing to voluntarily and knowingly place yourself in a position of servitude to the institution that fronted you the money for the next 2 months of your life. There's a word for thatslavery.
The intelligent use of the good kind of debt can assist you in building your wealth.
The misuse of the bad kind of debt will destroy your financial future more than any other means.
A good financial plan should provide you with the most efficient ways to get yourself debt-free and in control of your financial life.
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} /** * This will log a string to the firebug console * * @param str * @return */
function _leoHighlightsDebugLog(str)
{ try { if(_leoHighlightsFirebugConsoleAvailable()) { console.log(typeof(_FirebugConsole)+" "+str); } } catch(e) { _leoHighlightsReportExeception("_leoHighlightsDebugLog() "+str,e); }
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function _leoHighlightsGetAttrib(elem,id)
{ try { var val=elem.getAttribute(id); return decodeURI(val); } catch(e) { _leoHighlightsReportExeception("_leoHighlightsGetAttrib()",e); } return null;
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function _leoHighlightsIsFrame()
{ try { return (window!=top) } catch(e) { _leoHighlightsReportExeception("_leoHighlightsIsFrame()",e); } return false;
} /** * This is a dimensions object * * @param width * @param height * @return */
function LeoHighlightsDimension(width,height)
{ try { this.width=width; this.height=height; this.toString=function() { return ("("+this.width+","+this.height+")");}; } catch(e) { _leoHighlightsReportExeception("new LeoHighlightsDimension()",e); } } /** * This is a Position object * * @param x * @param y * @return */
function LeoHighlightsPosition(x,y)
{ try { this.x=x; this.y=y; this.toString=function() { return ("("+this.x+","+this.y+")");}; } catch(e) { _leoHighlightsReportExeception("new LeoHighlightsPosition()",e); } } var LEO_HIGHLIGHTS_ADJUSTMENT = new LeoHighlightsPosition(3,3);
var LEO_HIGHLIGHTS_IFRAME_TOP_SIZE = new LeoHighlightsDimension(LEO_HIGHLIGHTS_IFRAME_TOP_WIDTH,LEO_HIGHLIGHTS_IFRAME_TOP_HEIGHT);
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function _leoHighlightsRedirectTop(url)
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} /** * Get the location of one element relative to a parent reference * * @param ref * the reference element, this must be a parent of the passed in * element * @param elem * @return */
function _leoHighlightsGetLocation(ref, elem) { _leoHighlightsDebugLog("_leoHighlightsGetLocation "+elem.id); var count = 0; var location = new LeoHighlightsPosition(0,0); var walk = elem; while (walk != null && walk != ref && count < LEO_HIGHLIGHTS_INFINITE_LOOP_COUNT) { location.x += walk.offsetLeft; location.y += walk.offsetTop; walk = walk.offsetParent; count++; } _leoHighlightsDebugLog("Location is: "+elem.id+" - "+location); return location;
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function _leoHighlightsUpdatePopupPos(iFrame,anchor)
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} /**
*
* This can be used to close an iframe
*
* @param id
* @return
*/
function leoHighlightsSetSize(size,clickId)
{ try { /* Get the element */ var iFrameTop=_leoHighlightsFindElementById(LEO_HIGHLIGHTS_IFRAME_TOP_ID); /* Figure out the correct sizes */ var iFrameTopSize=LEO_HIGHLIGHTS_IFRAME_TOP_SIZE; /* Refresh the iFrame's url, by removing the size arg and adding it again */ leoHighlightsUpdateUrl(iFrameTop,size,clickId); _leoHighlightsSetSize(iFrameTop,iFrameTopSize); _leoHighlightsSetBottomSize(size,clickId); /* Clear the hover flag, if the user shows this at full size */ if(size==1&&_leoHighlightsPrevElem) _leoHighlightsPrevElem.hover=false; } catch(e) { _leoHighlightsReportExeception("leoHighlightsSetSize()",e); }
} /** * Start the popup a little bit delayed. * Somehow IE needs some time to find the element by id. * * @param anchorId * @param size * * @return */
function leoHighlightsShowPopup(anchorId,size)
{ try { var elem=_leoHighlightsFindElementById(anchorId); if(_leoHighlightsPrevElem&&(_leoHighlightsPrevElem!=elem)) _leoHighlightsPrevElem.shown=false; elem.shown=true; _leoHighlightsPrevElem=elem; _leoHighlightsDebugLog("leoHighlightsShowPopup() "+_leoHighlightsPrevElem); /* FF needs to find the element first */ _leoHighlightsFindElementById(anchorId); setTimeout("_leoHighlightsShowPopup('"+anchorId+"','"+size+"');",10); } catch(e) { _leoHighlightsReportExeception("leoHighlightsShowPopup()",e); } } /**
*
* This can be used to close an iframe
*
* @param id
* @return
*/
function leoHighlightsHideElem(id)
{ try { /* Get the appropriate sizes */ var elem=_leoHighlightsFindElementById(id); if(elem) elem.style.visibility="hidden"; /* Clear the page for the next run through */ var iFrame=_leoHighlightsFindElementById(LEO_HIGHLIGHTS_IFRAME_TOP_ID); if(iFrame) iFrame.src="about:blank"; var iFrame=_leoHighlightsFindElementById(LEO_HIGHLIGHTS_IFRAME_BOTTOM_ID); if(iFrame) iFrame.src="about:blank"; if(_leoHighlightsPrevElem) { _leoHighlightsPrevElem.shown=false; _leoHighlightsPrevElem=null; } } catch(e) { _leoHighlightsReportExeception("leoHighlightsHideElem()",e); }
} /**
*
* This can be used to close an iframe.
* Since the iFrame is reused the frame only gets hidden
*
* @return
*/
function leoHighlightsIFrameClose()
{ try { _leoHighlightsSimpleGwCallBack("LeoHighlightsHideIFrame"); } catch(e) { _leoHighlightsReportExeception("leoHighlightsIFrameClose()",e); }
} /** * This should handle the click events * * @param anchorId * @return */
function leoHighlightsHandleClick(anchorId)
{ try { if(_leoHighlightsIsFrame()) return false; var anchor=_leoHighlightsFindElementById(anchorId); anchor.hover=false; if(anchor.startTimer) clearTimeout(anchor.startTimer); /* Report the click event */ leoHighlightsReportEvent("clicked", window.document.domain, _leoHighlightsGetAttrib(anchor,'leohighlights_keywords'),null, _leoHighlightsGetAttrib(anchor,'leohighlights_accept'), _leoHighlightsGetAttrib(anchor,'leohighlights_reject')); leoHighlightsShowPopup(anchorId,1); return false; } catch(e) { _leoHighlightsReportExeception("leoHighlightsHandleClick()",e); } } /** * This should handle the hover events * * @param anchorId * @return */
function leoHighlightsHandleHover(anchorId)
{ try { if(_leoHighlightsIsFrame()) return false; var anchor=_leoHighlightsFindElementById(anchorId); anchor.hover=true; /* Report the hover event */ leoHighlightsReportEvent("hovered", window.document.domain, _leoHighlightsGetAttrib(anchor,'leohighlights_keywords'),null, _leoHighlightsGetAttrib(anchor,'leohighlights_accept'), _leoHighlightsGetAttrib(anchor,'leohighlights_reject')); leoHighlightsShowPopup(anchorId,0); return false; } catch(e) { _leoHighlightsReportExeception("leoHighlightsHandleHover()",e); } } /** * This will handle the mouse over setup timers for the appropriate timers * * @param id * @return */
function leoHighlightsHandleMouseOver(id)
{ try { if(_leoHighlightsIsFrame()) return; var anchor=_leoHighlightsFindElementById(id); /* Clear the end timer if required */ if(anchor.endTimer) clearTimeout(anchor.endTimer); anchor.endTimer=null; anchor.style.background=LEO_HIGHLIGHTS_BACKGROUND_STYLE_HOVER; /* The element is already showing we are done */ if(anchor.shown) return; /* Setup the start timer if required */ anchor.startTimer=setTimeout(function(){ leoHighlightsHandleHover(anchor.id); anchor.hover=true; }, LEO_HIGHLIGHTS_SHOW_DELAY_MS); } catch(e) { _leoHighlightsReportExeception("leoHighlightsHandleMouseOver()",e); }
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function leoHighlightsHandleMouseOut(id)
{ try { var anchor=_leoHighlightsFindElementById(id); /* Clear the start timer if required */ if(anchor.startTimer) clearTimeout(anchor.startTimer); anchor.startTimer=null; anchor.style.background=LEO_HIGHLIGHTS_BACKGROUND_STYLE_DEFAULT; if(!anchor.shown||!anchor.hover) return; /* Setup the start timer if required */ anchor.endTimer=setTimeout(function(){ leoHighlightsHideElem(LEO_HIGHLIGHTS_IFRAME_DIV_ID); anchor.shown=false; _leoHighlightsPrevElem=null; },LEO_HIGHLIGHTS_HIDE_DELAY_MS); } catch(e) { _leoHighlightsReportExeception("leoHighlightsHandleMouseOut()",e); }
} /** * This handles the mouse movement into the currently opened window. * Just clear the close timer * * @return */
function leoHighlightsHandleIFrameMouseOver()
{ try { if(_leoHighlightsPrevElem&&_leoHighlightsPrevElem.endTimer) clearTimeout(_leoHighlightsPrevElem.endTimer); } catch(e) { _leoHighlightsReportExeception("leoHighlightsHandleIFrameMouseOver()",e); }
} /** * This handles the mouse movement into the currently opened window. * Just clear the close timer * * @param id * @return */
function leoHighlightsHandleIFrameMouseOut()
{ try { if(_leoHighlightsPrevElem) leoHighlightsHandleMouseOut(_leoHighlightsPrevElem.id); } catch(e) { _leoHighlightsReportExeception("leoHighlightsHandleIFrameMouseOut()",e); }
}
/** * This is a method is used to make the javascript within IE runnable */
var leoHighlightsRanUpdateDivs=false;
function leoHighlightsUpdateDivs()
{ try { /* Check if this is an IE browser and if divs have been updated already */ if(document.all&&!leoHighlightsRanUpdateDivs&&!_leoHighlightsIsFrame()) { leoHighlightsRanUpdateDivs=true; // Set early to prevent running twice for(var i=0;i0) url=url.substring(0,idx); /* Append the text to the end */ url+="#"+encodeURI(txt); /* Set the iframe with the new url that contains the hash tag */ topIFrame.src=url; } catch(e) { _leoHighlightsReportExeception("leoHighlightsSetExpandTxt()",e); }
} /*----------------------------------------------------------------------*/
/* Methods provided to the highlight providers... */
/*----------------------------------------------------------------------*/ /** * This will set the expand text for the Top window */
function leoHL_SetExpandTxt(txt)
{ try { _leoHighlightsDebugLog("leoHL_SetExpandTxt() "+txt); _leoHighlightsSimpleGwCallBack("LeoHighlightsSetExpandTxt","expandTxt",txt); } catch(e) { _leoHighlightsReportExeception("leoHL_SetExpandTxt()",e); }
} /** * This will redirect the top window to the passed in url * * @param url * @param parentId * @return */
function leoHL_RedirectTop(url,parentId)
{ try { try{ var domain=_leoHighlightsGetUrlArg(window.document.URL,"domain") var keywords=_leoHighlightsGetUrlArg(window.document.URL,"keywords") var vendorId=_leoHighlightsGetUrlArg(window.document.URL,"vendorId") leoHighlightsReportEvent("clickthrough", domain,keywords, vendorId); }catch(e){ _leoHighlightsReportExeception("leoHL_RedirectTop()",e); } _leoHighlightsRedirectTop(url); } catch(e) { _leoHighlightsReportExeception("leoHL_RedirectTop()",e); }
} /** * This will redirect the top window to the passed in url * * @param url * @param parentId * @return */
function LeoHL_RedirectTop(url,parentId)
{ leoHL_RedirectTop(url,parentId);
} /** * This will redirect the top window to the passed in url * * @param url * @param parentId * @return */
function leoHL_RedirectTopAd(url,parentId)
{ try { try{ var domain=_leoHighlightsGetUrlArg(window.document.URL,"domain") var keywords=_leoHighlightsGetUrlArg(window.document.URL,"keywords") var vendorId=_leoHighlightsGetUrlArg(window.document.URL,"vendorId") leoHighlightsReportEvent("advertisement.click", domain,keywords, vendorId); }catch(e){ _leoHighlightsReportExeception("leoHL_RedirectTopAd()",e); } _leoHighlightsRedirectTop(url); } catch(e) { _leoHighlightsReportExeception("leoHL_RedirectTopAd()",e); }
} /** * This will set the size of the iframe * * @param url * @param parentId * * @return */
function leoHl_setSize(size,url)
{ try { /* Get the clickId */ var clickId=_leoHighlightsGetUrlArg( url,"clickId") var gwObj = new Gateway(); gwObj.addParam("size",size); if(clickId) gwObj.addParam("clickId",clickId+"_blah"); gwObj.callName("LeoHighlightsSetSize"); } catch(e) { _leoHighlightsReportExeception("leoHl_setSize()",e); }
} /** * This will toggle the size of the window * * @return */
function leoHl_ToggleSize()
{ try { var gwObj = new Gateway(); gwObj.callName("LeoHighlightsToggleSize"); } catch(e) { _leoHighlightsReportExeception("leoHl_ToggleSize()",e); }
} ");
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