Bad debt is anything you buy that doesn't help increase your assets. We call them "doodads."
When you find yourself deep in a hole, you need to stop digging. And that means curbing your spending - avoiding the temptation to buy doodads like a robot lawn mower, a car that gets ten miles per gallon, or a second pair of high-end athletic shoes. Admittedly, this requires willpower. Even today as people are realizing that they need to cut back due to difficult economic times, most people still have not been able to learn the old-fashioned virtue of delayed gratification.
By cutting back on doodads, you'll increase the percentage of income you keep. It's important not to consider this a temporary step. If you truly want to stay out of debt and enjoy security, comfort, or riches, you ought to make purchasing assets instead of doodads a life-long practice. Once you've built up your assets that provide you income, then you'll have the extra money you need to buy as many doodads as you want.
There are hundreds of ways to trim a budget. If you save $25 a week- and most people can easily trim that much - you'll have $1,300 a year to put towards your credit card balance. Save $40 a week and you'll have $2,080!Eliminate All Unsecured Debt
In addition to good and bad debt, there is also secured and unsecured debt. Secured debt is debt with collateral behind it, such as your home mortgage or car loan. Unsecured debt is debt with no collateral behind it, for example, personal loans, medical bills, and the charges on your credit card. Once you've cut expenses, the debt you should attack first is unsecured debt. While some unsecured debt is unavoidable - most is unnecessary, the result of unbridled spending. Review your unsecured and secured debts to see if they are good or bad debts. Rich Dad would consider most unsecured debt bad debt. Remember, good debt is debt that buys an asset, so it is usually secured debt.
