Personal Finances Series Part 3 (Debt)
Mr. John Nichols is helping us with our Personal Finance Series. He is a local middle school teacher, owns several rental properties and three years ago he got his real estate license. He strongly believes in using your money and assets to your advantage and also that, "saving money is a second income". He has seen the gap in what is taught at school about personal finances and wants to help parents to be able to fill in that gap at home.
Q- What is debt?
A- Debt is the opposite of savings. It is not having enough money to pay your bills so you borrow money to do so. Credit cards are one example of a way to borrow money you don't have at the moment but they use high interest rates that can add to the debt fast.
Q- Is there such a thing as good debt?
A- Yes. Good debt would be things such as owning property or a home because they will ultimately grow in value and can be used as an asset. If you strategically borrow money to buy assets that will increase in value and provide extra positive cash flow each month that is a good debt.
Q- How can we talk to our children about debt?
A- When you talk to your children about debt use personal stories of people you know or even yourself or family members. Talk to them based on your experience. For example; this is what I learned and this is how I improved my situation. Personal stories help children to understand better and make a personal connection to the topic. Success stories about before and after debt help show the positives.
For me; a story I think of when it comes to debt is from when I was living with a family member for a few months and saw them using credit cards to pay for everything. They were only paying the minimum on them each month and between the initial cost on the cards plus the additional cost of the interest rate; they were no where close to paying down the debt in a timely matter.
Q- How can debt affect other aspects of our lives?
A- The stress of living in debt, dealing with debt you have not paid off and feeling like you can't catch up will weigh you down. Stress can affect many things in your life and your health.
Q- Where can you turn to get help getting out of debt? How can you get out of debt?
A- You can contact a debt counselor for help or speak to a lender who can help point you to credit recovery people to help. You can look up Dave Ramsy, whom is a popular speaker, who helps people to be financially free. Some things you can do on your own would be to attack the debt with the highest interest rate first and get that paid off, cut back on what you are spending each month and add to your savings. Remember that getting into debt took a long time and it won't be resolved over night but even taking baby steps to start will help you reach your goal. You can also reach out to your bank or church and ask if they have classes you can take to help get out of debt.
Q- Why is it important to get out of debt?
A- One of the main reasons it is important to get out of debt; beyond financial reasons, is for your physical, mental and emotional health. Being in debt causes stress and stress affects our bodies and health very badly. It will give you more peace of mind if you are not in a lot of debt. Taking steps to get debt under control will help lower stress associated with being in debt.
Q- What are the top 3 things you think people should know about debt?
- Debt is bad for your health because of stress.
- You can not create long term generational wealth with debt.
- You won't be able to get things you want if you have large amounts of debt.