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	Managing Debt. It is inconceivable in this day and age to be living in urban society and still have no debt whatsoever. Borrowings in the form of car loans, education loans and mortgages are not just inevitable, they are in some cases even desirable. Debt as a class of financial products is not bad. Financially successful people have learned to distinguish between good debt and bad debt.
	In general, any debt that goes towards consumption is a bad debt. By this yardstick, car loans, credit card outstanding, personal loans, loans for purchase of jewellery, mortgages, are all bad debt. A more precise definition, and one that has been popularised by the “Rich Dad Poor Dad” series of books on financial education, is that all debt that takes money out of your pocket, all debt that does not result in a positive cash flow, is bad debt. Going by this definition, an educational loan, although it takes money out of your pocket towards repayment, helps improve your worth in the job market, you earn a higher salary or make more money in your business, and if this additional income from this knowledge is more than what you pay towards your education loan, it is an investment, a good debt. For the average person, a home mortgage is also a bad debt. Unless what you pay out toward the mortgage is less than what you would otherwise pay towards rent for the same quality of living space. A mortgage would qualify as a good debt if it would result in positive cash flow, that is, if your net income from the property is more than your mortgage instalment and maintenance expenses. You could also be taking a larger mortgage because you do not want to invest all your money towards the down-payment or cash component of the house purchase – you are investing some of your money in something that will earn an income higher than the payout on your mortgage. One class of debt that qualifies only as bad debt under any circumstances is credit card debt. Credit card debt is the worst kind of debt one can have. The charges and interest on credit card outstanding are the highest in the industry. Many of these charges are recurring, and eat away any payments you make. Credit card debt is the easiest to get into. You make avoidable, unnecessary purchases just because you can pay with your card, purchases you would have avoided if you were to be paying in cash. The chance to pay some time later makes the spending somehow seem “okay”. Unplanned, impulsive purchases and credit card debts are a deadly combination, and will set you back several years on your way to financial freedom. Management of debt is an important step in your journey to personal wealth.
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