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Erasing Debt

When Erasing Debt is a Bad Idea

Being in debt is generally considered a bad thing, right?  Not always.  Sometimes consumers can take the wrong approach to paying off their debts and wind up doing more financial damage to themselves in the process.  Here are some examples of when it may not be good to pay off what you owe:

  • When you are targeting the wrong debt.  You have likely heard that there is "good debt" and "bad debt".  Good debt would be low-interest, tax-deductible debt like your mortgage; bad debt, on the other hand, includes most other kinds of debt, like credit cards, car loans, student loans, and personal loans.  It's prudent to pay off your highest-rate nondeductible debt first.  Mortgage interest is typically the last debt you want to pay off.
     
  • When you're negotiating your retirement savings - or worse, dipping into what you've already saved.  It's easy to promise that you'll start saving "tomorrow", but it's even easier to keep putting that day off indefinitely.  The only way to ensure a secure future is to begin planning for it today.

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