So, you have debt. You also hope to retire someday and you want to start investing your money. Both require a commitment. Both require money. Which do you do first, pay off debt or invest?
Good Debt vs. Bad Debt
The first barrier to success in investing is bad debt. Yes, there’s good debt and bad debt. Good debt is money you borrow at a low rate of interest, with which you make a high rate of return.
An obvious example is the money you borrow to buy an apartment complex. The debt covered by the rental income – or it will be in a few years.
Bad debt, by contrast, is consumer debt – money you borrow at a high interest rate to buy things that don’t produce income or grow in value. Things like cars, refrigerators, clothing and trips to Europe.
All of us have done it, and all of us have paid the price.