Debt 101

• There is "good" debt and "bad" debt. Good debt helps increase your overall net worth, like mortgages, business and student loans. Bad debt has variable and high interest rates that eat up your monthly income on depreciating assets -- such as credit cards and car loans. It is best to only have good debt, with a small credit card available to be paid off in full at the end of the month.
  
  

How to manage good debt

• While good debt helps increase your net worth in the long run, you do not want the debt to run your life. It is best to make sure that your monthly mortgage payment not exceed 25% of your income. Additionally, while you can write off the interest of your mortgage and student loans on your taxes, the savings may not be worth it if you are paying on this debt for decades. Try to increase your payments on these loans to decrease the amount of interest paid over the long term. Tax writeoffs only save you so much.
  
  

How to manage bad debt

• The best way to manage a credit card is to pay it off in full at the end of each month. The interest due on these products is usually very high. If you have run up some credit card debt, try paying it off using the snowball approach. Pay as much extra as you can on the smallest credit card debt you have. Once it is paid off in full, take that monthly payment and add it to the monthly payment on the next highest debt. Pay it off in full and "snowball" that payment to the next one until all debts are paid in full.
  
  

Car Loans

• Car loans, while considered bad debt, are many times a fact of life. They are considered bad debt because a car is a depreciating asset. You could easily end up owing more than the car is worth within a year of its purchase if the car has lost value or you financed 100% of the purchase price. Regardless, in many areas you have to have a car. Try to keep your car payment as low as possible and pay it off in full before you purchase a new car. If you trade in a car with debt still attached to it, you will have to "roll" that debt into the new car loan. This means that you are "up-side down" in your car payment.