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Categorizing Your Debt

Updated: Sep 30, 2019

There is a tendency to classify debt into two groups: good and bad. "Good debt" is typically associated with investing in your future so that could be your student loans (as burdensome as they are) and a home. "Bad debt" doesn't add wealth or have any long-lasting value, a good example would be carrying high balances on credit cards and paying high interest.

These classifications normalize debt and create shame around hardships that are out of your control.

Unless you've invented a time-machine there are zero benefits from beating yourself up about "bad debt". Instead, focus on paying down your debt and not getting into debt again.

Debt creates stress and we should do our best to avoid it, but sometimes life throws us curveballs and we do our best to stay afloat. If you're currently experiencing a hardship or overcoming a financial setback, you may find this blog post helpful.

Starting today there is one way to look at your debt: old vs. new. The road to financial independence begins with not adding any new debt.

Use a monthly budget to keep your expenses less than your income. There is a free template in the Resources section of my website if you need a place to start.

My favorite debt repayment method is Dave Ramsey's Snowball Plan that I cover in detail in this blog post. To summarize briefly: you list your debt from largest to smallest and start paying your debt off in that order. As you pay off debt accounts, you add those payments you were already making to that account to the next, to create a "snowball effect".

The reason I favor this method over others is that paying off the small amounts gives you the motivation to keep going and also shows you that you are capable of doing this money thing! 🤑

See what kind of changes you can make this month to make sure you don't add new debt starting today. Implement these changes and see where it takes you in the next two weeks.

Here's a link to my calendar, let's find practical tips that you can start implementing today and will make an immediate impact!


If you have a money question, submit it here for a chance to be featured in the "Dear Olga" column!

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