Have you ever wondered why the things that evoke the most passion or emotion in us… are usually known by four-letter words? Some of these include love, hate, fear, work and of course… Golf! Another emotion-charged four-lettered word that causes most of us to break into a sweat… is DEBT!!!

Mostly, we are conditioned to fear debt and avoid it at all cost. So why does debt propel one family to great riches… and another to poverty? How come the majority of wealthy people quite adequately manage large amounts of debt? Can debt be a positive thing to help us get ahead… or is it always a negative thing to be avoided? Before we can accurately answer this, we need to clarify our definition of debt!

The same single word… debt, can be used to describe three very different borrowing strategies.

Over the next three Fridays, let’s look these three different types of debt… and once and for all dispel any confusion surrounding this subject.

HORRIBLE DEBT (Type 1 of 3)

Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Charles Dickens (Wilkins Micawber in David Copperfield. Chap. xii.)

HORRIBLE DEBT is the type of debt we enter into to buy things that depreciate (go down in value) and attract no tax deduction for having made the purchase.

This is the type of debt that we should ‘run and hide’ from! Horrible Debt, typically credit card or consumer debt is what the masses enter into every day… usually without a second thought! It was Horrible Debt that kept Wilkins Micawber in poverty… at least until he finally came to his senses!

Of course we must spend money to buy clothes, food, petrol, children’s education and so on… but just maybe… we should consider delaying the purchase of that wide screen plasma television, or the new lounge suite that we so desperately need (want)… until we can pay cash!

HORRIBLE DEBT is habit forming. If you are susceptible to this sort of debt… look back over your spending habits and notice the expenditure pattern and debt levels on your credit card. There is often a level people will continue to reach because they are comfortable with it… it’s all part of the Horrible Debt habit!

There are a lot of people who only clean up their credit cards when they get a bonus or maybe from the proceeds of selling something, like the family home. Because they have a debt habit it won’t be very long before the old levels are reached again!

HORRIBLE DEBT is debt that will keep people poor! Ask Mr. Micawber! The least amount of Horrible Debt we take on… the better!!

Over the next two weeks let’s dispel the myth that all debt is bad… and discover how if properly managed; debt is a vital part of most people’s journey towards financial security and independence.

Happy Investing,

Nick Lockhart