Individuals can use debt in the same way the pros do if they are aware of who they are getting advice from and how the terms of each type of debt they hold relates to their other debts, assets, income, investments, savings, and spending habits. All debt is not the same, and to be responsible about our money, we need to be aware of the good debt and bad debt with more in mind than what the credit score people say.

From time to time, it’s necessary to live beyond our means in order to move up in the world. That means we will acquire debt because we know we will be paying it back when we have more money than we’re getting at the moment as income. We need to actually have a plan in place to make sure we are earning more money in the future though. It’s not enough to say, “I’ll make more later”. Put some thought into how we can use debt as LEVERAGE for our lives. Here’s what I mean….

We start out in debt. Everybody does. Even if you’re lucky enough to have parents that completely supported you through college, once you get out, you probably needed a car, right? So you either paid with a sack of cash with a dollar sign on the side of it like a cartoon, or financed it with a car loan. The car loan is leverage because it enables you to use a car to get to work. Without the car, you wouldn’t have work. Without work, you wouldn’t have income. Therefore, in order to start an income stream for yourself, you make a deal with a company that you will pay them income from your job that you will get if they will allow you to use the car in the mean time to get the job and commute to it. That’s called leverage. We use it like a lever to hoist ourselves into a position of greater financial means. Lever… Leverage…..

Here’s a list of some different types of debt arranged in order of least desirable. By desirable, I don’t mean desirable to credit rating agencies… I mean desirable as in smart financial decisions.

1)Credit Cards

2)Student Loans

3)Mortgage/ car loans

Credit card debt is dangerous. I think the whole check your credit score campaign is propagated to the extreme extent we see today because that’s the only way credit card companies will not become completely moot. They had to come up with a way to make it seem like having a credit card is responsible, so they do so by pushing the credit score thing and saying you need to be checking that all the time if you want any chance of not sucking at life later on down the road…. Credit scores are important, but they will be fine as long as you use your debt correctly. Use debt for leverage, not for spending.

To do so, my number one suggestion is do not pay extra on your good types of debt every month and then charge living expenses on your charge card! That’s taking relatively good debt and turning it into bad, expensive debt. It can make a person feel like they’re doing a good job getting rid of debt, but it’s actually working against them. Be aware that debt isn’t black and what. It’s not as simple as just paying as much as you can every month, then charging things when you don’t have enough income left over. Compare interest rates. Do not add to high interest rate debt and pay down low interest rate debt as quickly as you can at the same time. It’s a pretty important thing to be aware of.

Credit card debt is number one on my list of least desirable because I take issue with the fact that the crediting company is able to change their rates on debt you’ve already accrued. This means you are agreeing to take on debt and pay an interest rate of a specific percentage when you sign the receipt. But the deal you get when you sign the receipt isn’t usually unchanged down the road. That’s why we get those wordy contracts in the mail once or twice a year from our credit card companies letting us know that they’ve changed something here or there and to read their new contract terms because we signed this new contract back when we signed that receipt a year or two ago.

That said, I hope every reader knows if they are living beyond their means or not. As I said before, from time to time, it’s necessary to live beyond our means in order to move up in the world. Sometimes you need to spend money in order to make money. Just try to remain aware that if you are consistently getting into the habit of living beyond your means and don’t have a strategy or reason to be leveraging your income at the moment, you will rack up lots of debt and make lots of money for the credit card companies.

If you are spending on strategic things that will enable you to increase the income you generate at a later date by more than you expect to have to pay on the debt, then you are leveraging. If you are spending because you want something and don’t have the income right now for it but are pretty sure you’ll make more later and everything will work out…. you are not leveraging, you’re just spending.

Ok next on my oversimplified list is the student loans section. As an investment advisor, I like student loans. Here’s why. They are hotly debated in the political world right now. Over and over you hear repeated in the press and by individuals on social media that, “Something needs to be done about the student debt crisis!!” As a financial professional, what I hear is, someone somewhere is going to pull some strings in order to get something they want, like elected…

In addition to these observations, there are different types of student loans such as those sponsored by public companies and those sponsored by the US Government. Each has different interest rates, and each have different ways of negotiating the terms in which the receipient pays back their borrowed money. That’s right, I’ll say it again, “Negotiate with every single one of your loan providers the terms in which you will pay down your debt!!!” The worst that will happen is that they won’t negotiate with you and your terms will remain as they are currently. The best that will happen is that you’ll see some success, learn from the conversation, and be more informed and competent in business so that you can make better deals for yourself in the future. Take it upon yourself to make the loan provider earn the interest they’re charging you for your money. Learn as much as you can by engaging them, asking for what you want, and figuring out ways to get it. There’s nothing for you to lose!

Lastly, a mortgage is a good thing (within reason) to have on your personal finance books right now. I say within reason, meaning don’t go out and buy a house you can’t afford to make payments on just to have a mortgage. People do that, don’t laugh! Interest rates are so low right now, that it’s likely to be a few decades before they are around this low level again. That means, getting into a fixed rate mortgage is a good way to leverage your income right now. FIXED RATE!!! Not adjustable. If your mortgage rate is 6 % or above, you might consider refinancing to a FIXED RATE mortgage in the next few months.

The last things I’m going to say in this post is that debt is more complicated than people realize. There are types of debt that behave differently. Your credit score is not a good source when considering what types of debt to have in your portfolio. The creditors (credit cards) are quick to tell you how important your credit score is, but be aware that the types of debt you have and the amounts in which you have them are very important parts of your financial portfolio. Governments and corporations use debt to leverage their companies. As I said before, individuals can use debt in the same way the pros do if they are aware of who they are getting advice from and how the terms of each type of debt they hold relates to their other debts, assets, income, investments, savings, and spending habits.

Thanks so much!

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About Laurel Hardy:

Mrs. Hardy is an investment advisor representative of and offers investment advisory services through Bespoke Wealth Management, LLC, a registered investment adviser offering advisory services in the State of Connecticut and other jurisdictions where registered or exempted. Main Office: 1476 Poquonock Ave, Windsor, CT 06095. Tel: 844-245-7135. Additional disclosures are available by visiting the disclaimer page of