After Paying Yourself First the another thing you have to do in your life to attain financial freedom is to Pay off your debts, start writing each and every debt you have right now, remember you should be frank atleast to yourself. Don't dare to hide any debt with yourself, write them down and make a plan to pay them off to attain your life's financial freedom and start with your baby steps to grow rich.
Just after writing all your debts you must now order them in the way you will pay them off, suppose you have 5 types of debts right now starting with Home Mortgage, Car Loan, Personal Loan, Credit Cards and Consumer Loans. Make a plan and put them in a order to whom you will pay off first (My personal recommendation will be start from the small) Put the smallest amount as your first preference and just pay it off as soon as possible.
The sooner you will pay off your debts, you will see the rapid increase in the money left over with you each month after all expenses.
Do you know there are two types of debts, and you must know which debt you are having The Good one or The Bad one. Let's discuss it more clearly...
Bad Debts Vs Good Debts
Having debts is not the bad thing everyone have debts the riches have debts too but they have good debts and poor people have bad debts - The debts for which they pay for.
What do you think the Good or Bad Debt actually Is?
You must be thinking that the bad debt is that which will not be recovered as we have studied in our accountancy days at school, right?
Lets define both debts one by one
Bad Debts
Bad Debts are basically those debts for which you pay for, you struggle all the month to get your paycheck and then you spend more than half of that paycheck just to pay off these debts.
For example: X took a Car Loan of 10 Lakh for 5 Years with the monthly EMI of say 20,000 and his monthly net salary is 50,000. At the end of the month whenever he gets his salary he immidiately pays off his Car Loan EMI and then he is left with just 30,000 which he spents to pay off other debts.
So basically all his debts are bad debts because he himself struggles to pay his debts off.
To make it more clear and summarize it in short,
BAD DEBTS = DEBTS YOU PAY FOR
Good Debts
Good Debts are those debts for which someone else pay for you, you don't need to struggle to pay off your these debts - someone else will.
Got confused?
Well then I have another example for you...
Y was looking for some real estate properties to buy, he went near some university college and found a great building with 8 apartments - the price for the bulding was Rs. 50 Lakhs he was offered Rs. 5 lakhs as downpayment and Rs. 45 lakh loan on the building by his bank.
He immidiately took that loan and bought that building,
Now it's upto him that he wants to make this Rs. 45 Lakh of Debt amount Good or Bad for him?
As, I said Good Debts is for which someone else pay for you...so in this case Y put an advertisement in the neighbourhood of the building that apartments available for rent at Rs. 5000 per month.
Many University students ran after the advertisement as they were looking for places to live in, immidiately he got all the 8 apartments on rent and that building was generating Rs, 40,000 of monthly cash flow for him. His monthly EMI for the 45 Lakh of debt was Rs. 35,000 for 15 years.
So, his monthly EMI was paid by the tenants and he was still left with Rs. 5000 every month. In this way the Debt amount of Rs. 45 Lakh in this case was a Good Debt for Y.
GOOD DEBT = SOMEONE ELSE WILL PAY FOR YOU
Bottom Line
So, my friends just read and re-read the Financial Mantra #2 - Pay off your debts, the bad debts. As I said having debts is not bad the problem is having bad debts so just start listing all your bad debts and start paying them off to get out of the trap and attain your financial freedom.
If you have any query/feedback then feel free to comment below or you can even write me at my email contact@gurpreetsaluja.com and if you are reading my blog for the first time then don't forget to subscribe to my newsletter service so that you can recieve all the furture updates directly in your inbox.
Also Read:
Financial Mantra #1 - Pay Yourself First
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