Debt is a significant stumbling block that prevents them from achieving prosperity. As families take steps to get debt relief they improve their cash flow and build their net worth and wealth.
Debt is a tool that, if managed well, can help families. Mortgage debt allows a family to purchase a home – and since the interest for mortgage debt is tax-deductible, and the balance of the payment reduces the principal, mortgage payments have a relatively small effect on net worth. In fact, houses appreciate in value over time – so mortgage debt allows a family to invest in real estate, an appreciating asset.
Debt used to purchase depreciating assets have more of a negative effect on net worth. Automobiles, clothing and other goods depreciate in value. Purchases of depreciating assets should be weighed on the merits of the intrinsic value of the item – its utility – for the family. For example, debt to purchase a car may be fully justified because of the utility value of the car to enable employment and other needs of the family.
Debt used to purchase experiences is the least desirable use of credit. Trips and vacations should be funded from assets that the family has stored. Experiences have value – hedonistic value – so it seems counterintuitive to say that debt to fund experiences is inappropriate. Yet, this use of debt is where the family should live within its means. Valuable experiences can occur very inexpensively.
Visit the “debt’ Trail Guide for more information to get debt relief and reduce your debt.
Prosperity Concierge