Two Kinds of Debt

Money advice for men and women can be starkly different. Advice for men is invest in yourself, have confidence, it's okay to make mistakes, spend money on yourself, and leverage debt.

But the advice given to women is create a budget, save, coupon clip, and don't spend too much. Because somehow we're inherently bad at money? Uh no. The stereotype that men are better at money than women has been around for forever. However, recent studies have shown that this is simply not true. One reason why women may be better at managing money is that they tend to carry less debt than men. According to a study by Experian, women have an average total debt of $21,499, while men have an average total debt of $23,245. In addition, women are more likely to pay their bills on time and have fewer delinquent accounts.

So today, we're going to talk about two types of debt so that you can break the stereotype and learn to use money and debt as tool.

Destructive Debt

Destructive debt serves no purpose or lacks a future payment plan. It's basically debt that doesn't serve you. Think shopping spree after your boss yelled at you at work, only to find those clothes unused in your closet a year later. Or buying an expensive car that's not within your means. Humans cope with anxiety and fear through numbing actions like eating too much, binge watching, or spending to soothe.

Next time you swipe your credit card or make a large purchase, ask yourself if you are making the purchase because you are trying to avoid dealing with your feelings about something else. If yes, pause, and take some extra time to decide if what you're buying is worth it.

So how do you know if debt you already have is destructive? Ask yourself if the debt adds value to to your life. If not, it's probably time to start tackling that debt.

High interest debt, such as credit card debt, can be particularly challenging to pay off.

The easiest way to pay off debt is to:

• Make all minimum payment every month
• Put extra money towards your smallest debt first. When that is paid off move to the next smallest debt. Rinse and repeat.

Credit card debt or other types of high interest debt may be worth tackling aggressively. For credit card debt, there are loans with lower interest to consolidate the debt. This can help you tackle the debt faster and free up much needed cashflow for other important things in your life.

Productive Debt

But not all debt is bad. In fact, leveraging debt to help you achieve a goal can be a real game changer. It's like running around in circles versus taking flight. I like to call this productive debt.

Debt can be useful to:

• Buy a house
• Start a business
• Scale a business
• Increase your credit score (small loans on items like a washing machine or jewelry show credit bureaus you are an ideal borrower)

For productive debt, make the minimum payments (maybe a little extra) and keep on moving. Paying off productive debt off early takes cashflow out of your pocket. You won't be able to use that money to make more money or spend it on something you value more. This is called opportunity cost.

Opportunity cost can be hard to measure, but it it's easy to ask yourself, "If I spend this now, what am I giving up in it's place?"

You could put $500 extra toward your mortgage, or you could spend it on a content course to help jump start your company. Which one has the best chance of making you money in the future? Not only could purchasing the course pay for itself, but it could produce even more.

Or you could take that $500 and take your kids on day's adventure to build memories and strengthen your bond. Is that more valuable to you than being 0.0143% closer to paying off your mortgage?

Money is A Tool

One of the most important things to know about building your wealth is that money is just a tool. It doesn't define your value and it won't make you happy. And being in debt doesn't make you a bad person. In fact, most businesses leverage debt to get started or to expand. Don't let it scare you away from leveraging debt to enhance your life.

When taking on debt consider two things:

• If you're taking on unproductive debt or productive debt. If it's unproductive, find a way to way to pay for the desire upfront.
• Always have a detailed plan to pay off debt that you do choose take on. Debt without a plan will lead to stress and anxiety.

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