Chapter 5

Dealing with Debt


check Using your savings to lower your debt

check Getting out of debt when you don’t have savings

check Understanding the pros and cons of filing bankruptcy

check Halting your spending and staying out of debt

Accumulating bad debt (consumer debt) by buying things like new living room furniture or a new car that you really can’t afford is like living on a diet of sugar and caffeine: a quick fix with little nutritional value. Borrowing on your credit card to afford an extravagant vacation is detrimental to your long-term financial health.

When you use debt for investing in your future, I call it good debt (see Chapter 2). Borrowing money to pay for an education, to buy real estate, or to invest in a small business is like eating a well-balanced and healthy diet. That’s not to say that you can’t get yourself into trouble when using good debt. Just as you can gorge yourself on too much good food, you can develop financial indigestion from too much good debt.

In this chapter, I mainly help you battle the pervasive problem of consumer debt. Getting rid of your bad ...

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