A key to financial security is to eliminate bad debt and pay down good debt. Bad debt is loans that were used to purchase consumable items or depreciating assets (assets that decrease in value over time). The common examples of bad debt are credit cards, auto loans and installment loans. Good debt is loans that were used to purchase appreciating assets (assets that increase in value over time). The common example is a mortgage secured by real estate.

Your first priority is to pay off your bad debt loans. These loans have higher interest rates and usually are not tax deductible (consult your CPA). Bad debt is the result of spending more on your chosen lifestyle than you make each month. Budgeting your monthly expenses each month will help you in eliminating bad debt from your life.

Good debt should be paid down over time. Often these loans have the lowest available rates for borrowers and are often tax deductible (consult your CPA). Good debt is loans that should be paid off only after you have achieved your financial goals of eliminating bad debt and having funded your savings plan.