Seven Steps for Building Wealth: Step #4

Written by Dave Young, President

Step #4:  Avoid Unnecessary Debt

Debt can be useful if used properly. On a recent trip to Africa, I noticed that there were half built buildings everywhere. Projects were at different levels of completion and then abandoned. When I asked my guide why the structures were halfway done, he responded, there is no banking system. There is no way for the common man to borrow money. People can only complete part of the building because they lack the funds to pay for building supplies right away. So they build what they can pay for now, and then come back and build more next year when they have more money.

If debt is used sparingly, for assets that appreciate or allow you to make more money, then debt makes sense. For example, a house, a car, or an education all make sense.

Using debts for consumables or things that go down in value, makes no sense. Most credit card debt is for things that hurt rather than help your financial situation.

My definition of a credit card is, "A means of buying something unneeded, at a price you can't afford, with funds you don't have."

Set a goal to live debt free. With 1.5 billion credit cards in circulation, an average household credit card balance of $8,562 and an average interest rate of 19%, it's no wonder that one out of every 50 households filed for bankruptcy in 2005. In the United States the household debt-to-income ratio reached an all time high.

Accumulating debt is the exact opposite of accumulating wealth. If you are paying debts, you are helping someone else accumulate wealth. With the few exceptions mentioned above, avoid debt like the plague.

Comments

[8thWonder]

I like this principle the best...'If you are paying debts, you are helping someone else accumulate wealth'.