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Do you love your debt!


When you get your credit card statement in the mail, which you don't even bother to open, do you fling it to the side as a sign of love? Do you conveniently forget to open it because you are too overwhelmed with joy? My guess is no. "Why would you have that then?", would be my question. Before you blow your top like the people on the new Jet.com commercial, let me take some pressure off. You've been infected! American consumerism has seeped into every aspect of our lives in this country and several other countries around the world. The American mantras "Bigger is Better", or "Latest and Greatest", has moved families further and further into a dark financial abyss. The scary thing is that this financial abyss has become the new normal in our society. You know its terrible when the phrase "more month than money", in reference to not having enough to cover monthly obligations, is an accepted colloquialism. A fair question again, "Why do you have those bills then?". Sounds all bad, right? Well what about people that open their bills and love their debt??

The truth is, there is good debt and there is bad debt; some may even say bad debt and better debt. Either way, the point is not all debt is the same. It's very important to understand the difference between the two. An article at www.money.usnews.com discusses "Better debt" as a loan with a low interest rate used to purchase something that adds value. It describes "Bad debt" as financing a depreciating asset or entering a loan as a substitute for cash.

A key rule of thumb is determining opportunity cost, which is defined as the calculation of the opportunity lost [or gained] based upon the decision to expend resources. There is something really freaky about opportunity cost if you truly understand how to leverage money though. The calculation of what you can loose when you choose to enter into a "bad debt" agreement never actually ends. It goes on into infinity!

There IS a saving grace. The lava bubbling underneath this volcano is the quiet rumblings of compound interest. Generally, when we are taking out loans they are amortized loans, right? What if you were able to benefit from the exponential growth inherent in uninterrupted compound interest while paying down these amortized loans?

Amortized loans cannot keep pace with uninterrupted compound interest. Setting up accounts where you can take advantage of uninterrupted compound interest would allow your "better loans" to become good and your "bad loans" get an upgrade as well when your total financial picture is considered.

The bottom line when it comes to your portfolio, income, expenses and debt is the net effect of all your decisions. Because of the way most of us engage with credit and debt and the financial service industry in general, we continue to get gobbled up while the industry giants win to the tune of 800+billion per year. There is an Afrikan proverb that says the only way to stop a tyrant is to stop being the victim. The credit card and loan corporations are using strategy to meet their financial goals. What about you?

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