Make a list that includes all of your liabilities. Gather your financial statements and make a list that includes all of your debts. The list should include the following: The name of the company that you borrowed the money from. The outstanding balance on the loan. The monthly minimum payment. The expected date when the loan will be fully paid off. Create a list of everything that you bought with borrowed money. You probably used most of your debts to make purchases. Write down a list of everything that was paid for with a loan. If you can't remember everything you bought with your credit card, simply write down "Credit Card Purchases." Combine the two lists. Create a master list that connects your debts to your purchases. For example, if one of your debts is a Visa credit card, list the purchases you made with that credit card under its heading. If you bought a house with a mortgage, list the house under the mortgage heading. Anything you labeled as "Credit Card Purchases" from the step above is considered bad debt. Very rarely do people use a credit card to buy something that increases in value over time. Separate your good debt from your bad debt. All of your debts will fall

into one of two categories: good debt or bad debt. That's based on the following criteria:[2] X Research source If the purchase involves something that typically increases in value over time, then it's good debt. Examples of good debt include: your home, your college education, renovations, and fine art. You accumulate bad debt when you use credit cards or other debt to establish or maintain a lifestyle you could not otherwise afford. Purchases that you no longer remember or use, such as entertainment, travel, or basic living expenses, are examples of bad debt and living beyond your means. Going into debt to purchase a new car is considered bad debt, since its value quickly depreciates and the interest rates may be very high. Eliminate all of your bad debt before you invest. The reason that you should eliminate your bad debt before you start investing is simple: you have a double expense associated with bad debt. The purchases made with bad debt include items that go down in value over time, so you're losing money as those items depreciate in value. The purchases made with bad debt may have a high interest rate associated with them, so you're losing money by paying an interest

expense. In the case of credit card debt, that expense can be quite high. However, just because something is interest-free it does not make it good debt. An interest-free loan on an expense or depreciating asset could be bad debt. If you invest while you still have bad debt, you're taking a risk with money that could add to the losses you're already experiencing. Consider investing once you only have good debt. If all the debt you have is good debt, you can invest because you'll typically see an appreciation in value of the things you purchased with the debt. If you purchased a house with a mortgage, that house will usually increase in value over the long term (though this is not guaranteed). That increase in value will offset, to some degree, the interest that you're paying for the mortgage. If you still have college loans, you invested in your professional career. Your salary should increase over time as you gain more experience and/or get promoted. Consider the risks of investing. Even if you are free of your bad debt, remember that there is always a risk involved with making an investment, and you will need to weight the potential risks and rewards of investing. For instance,

consider that good debt doesn't always give the returns you hope for — the real estate market has proven to not be as steady as was once thought, and more and more college graduates are finding that their degrees aren't guaranteeing a good job.[3] X Research source You need to examine the cost of good debt versus the expected return on investment. For example, it might be better to pay off a good debt with a high interest rate if your potential investment return is less than the interest on the debt. Avoid incurring more bad debt once you've started investing. If you have to, liquidate some of your investments to purchase items that go down in value. However, avoid incurring more bad debt with losses that will offset the gains from your investments. A car, for instance, may be a necessity where you live, or for your lifestyle. But going into debt to buy the newest, shiniest car is considered a bad debt — they are expensive, quickly depreciate, and the interest you pay is a waste of money.[4] X Research source To avoid this, either pay cash for a reliable used car, or take out a loan with little or no interest and buy an inexpensive car you can pay off fairly quickly.[5] X

Research source Look at the big picture. Debt can be scary and stressful, and, for the most part, it is best to get out of debt completely as soon as possible. However, paying off certain debts is not always the best decision in the long-term. Don't become so obsessed with paying off debt that you don't look at the big picture.[6] X Research source Sometimes it is worth it to keep your mortgage for the tax benefits.[7] X Research source Paying in full for a second home by taking money out of your retirement plan, for instance, may seem ideal since you will have no debt. But, in fact, you must pay taxes to take money out of your retirement plan — it may actually be better to have a mortgage on the house and get a tax break.[8] X Research source Plan carefully for retirement. Most people are retiring with some debt. This is okay, as long as you have carefully planned your finances post-retirement to be able to pay those debts.[9] X Research source Experts recommend you have a spending plan for your retirement which includes being able to pay off your debts. This may mean you have to work a few years longer than you'd like, but you'll be saving yourself stress and financial hardship

in the long run.[10] X Research source