Debt comes in multiple forms, so it is important that we clarify what kind of debt I am actually going to talk about here.

What I don’t mean is “investment debt”, or “productive debt” which is debt that is related to purchasing an asset, such as real estate. As long as the debt is taking on in order to invest it, there is nothing wrong with it. I also don’t mean student debt. If you take out student loans in order to get an education that will pay off over your career in terms of higher earnings, that’s great.

What I am referring to here is “consumer debt”. Debt that you take on through various forms (typically credit cards) in order to purchase something that you want, but that you don’t need.

An example, for instance, would be a debt-financed purchase of a larger flatscreen T.V. or a new phone when your old one is still quite alright. Decisions like this may feel good in the moment, but you need to understand that they are not necessarily in the interest of your long-term financial health.

There are two reasons for this:

  1. 1.Consumer debt typically comes with very high interest expenses. Credit card debt can easily compound at rates in the high teens, making a purchase financed by such debt almost prohibitively expensive.
  2. Spending money on consumer goods is not exactly the way to becoming financially independent. If you want to retire early, you need to spend money on making money.

While taking on consumer debt is not a smart financial decision, it has potentially catastrophic implications. Too many people are weighed down by consumer debt. They are making regular payments on their credit cards and auto loans, which negatively impacts their cash flow on a recurring basis. They are so busy paying their debt, that they have no money left to invest and set the base for their own financial independence.

Debt is highly toxic to your financial goals and your emotional well-being. Nobody likes to have debt. And nobody really likes to pay 15% or 20% in credit card interest a year just because you fell for a marketing campaign.

If you want to regain control over your finances, I’d recommend you download the Excel budgeting sheet I have developed (you can find it here).

Furthermore, I recommend cutting up your credit cards and throwing them in the trash! If you throw cut them up and throw them away, you won’t even be tempted to using them. If you don’t trust your own discipline, that’s a great way of avoiding costly financial mistakes.

In addition, I found it is extremely helpful to make it a habit to pay everything in cash. That way, you immediately feel the impact of every purchase you make, and it serves as a crucial reminder that your purchase better be smart. I am sure a lot of people wouldn’t buy that flatscreen T.V. or that bigger car if they were forced to cough up the money in fresh dollar bills.

The only form of debt you should accept in your life is productive debt, debt that allows you to make money long-term. Better yet, don’t take on any kind debt at all if it is avoidable.

Be a saver, don’t be a spender!