Paul Haarman: Good Debt vs. Bad Debt: How to Tell the Difference and Eliminate the Wrong Kind of Debt

When I was a kid, we had a simple household. My dad worked and my mom stayed home with their kids—me and my two sisters says Paul Haarman. Back then, you could say that our family earned $60K per year after taxes, which is pretty good for North Carolina in the early ’80s. But $60K back then doesn’t go as far as it does today. And so the idea of “living within your means” wasn’t just an expression: It was a way of life!

For me and my family, that meant living on one income and using the other to pay down debt as quickly as possible. My father made all kinds of sacrifices—like giving up his motorcycle to help pay off our consumer debt—so we could escape the chains of debt faster.

It’s not like we were completely anti-debt, though. We owned our home and that was a great investment because it allowed us to live in one of the most affordable areas in Charlotte, North Carolina. Plus, we only had to pay $900 per month for a 3/2 with two living rooms and a full basement! That’s $900 for an entire mortgage payment — talk about living within your means!

But my parents’ commitment to minimizing their lifestyle didn’t stop there: They taught me how to cook from scratch, do my own laundry and keep myself nice and clean so I wouldn’t have to spend money elsewhere. And when all of the financial belts started getting tighter, my parents stopped going out to eat at restaurants, stopped buying new clothes and even went so far as to forgo the purchase of a color TV.

If you don’t know it already, kids are pretty impressionable. And when I saw my parents struggling with money but still managing to live within their means, I knew that’s what I wanted to do when I started being responsible for myself. It seemed like a much wiser way to protect my financial future than getting into debt every time I needed something explains Paul Haarman.

Still today, whenever I see people take on more debt than they can handle—like through credit cards or taking out student loans—I think back to how our family lived during that period of time. We were completely debt-free and that gave us the opportunity to save, invest and escape debt much faster.

And it’s all because my parents showed me how to distinguish between good debts vs. bad debt.

Here are some practical tips I picked up back then, along with some new insights I’ve gained since:

Good Debt –

This type of debt is like “good credit.” It has low interest rates, allows you to live within your means AND gives you tax advantages. And these days, if you pay for something with cash (instead of through a credit card), it makes it even more affordable! Examples include mortgages/investments, student loans (if your job prospects are highly unlikely without at least a Bachelor’s degree) and business loans (if you can afford the interest and manage to pay it back quickly).

Bad Debt –

This kind of debt is like “bad credit.” It has high interest rates, forces you to live above your means AND doesn’t give you any tax advantages says Paul Haarman. And even worse, once you acquire this form of debt—like through credit cards or auto loans—it typically takes years (and thousands of dollars) to get rid of it! Examples include credit cards, auto loans, furniture financing and cash advances from your 401K.

So how do we know if we have good debt vs. bad debt? The first step is to figure out where your money goes. People who constantly accumulate consumer debt usually spend too much on things they don’t need.


If you want to live within your means and accumulate wealth, stop wasting money on things you don’t need!

Now remember: I didn’t grow up with a silver spoon. I knew what it was like to struggle financially—I just couldn’t relate to the people who were constantly getting into debt and not learning from their mistakes. And so when I started making my own money, I realized that the last thing I wanted to do was spending frivolously and fall into bad debt because it would be hard for me to get out of it!

In fact, one of my early jobs after college involved working as a financial analyst for a large banking company. As part of my job, I had access to all kinds of information about consumer finances…


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