Good Debt, Bad Debt: Little Secrets About Borrowing

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Bad debt is generally the kind you put on credit cards and later have little or nothing to show for -- vacations, restaurant meals, shopping trips to the mall. Still worse for your fiscal health is taking out a second mortgage to pay off credit cards instead of, say, remodeling your home. This means a higher monthly payment without any increase in the property's value.

Successfully managing debt begins with avoiding unnecessary spending. Governments, businesses and individuals burdened by too much debt must learn to exercise financial restraint. A lack of restraint led to the current budget deficit – debt that has grown larger from a decrease in tax revenues resulting from high unemployment.

Just as individuals must tighten their belts when income declines, so should the government. Yet congressmen who opposed the debt-ceiling increase confused reneging on obligations (including paychecks for soldiers) with actual debt reduction. This is like eating an expensive dinner and then leaving the restaurant without paying the bill. The point is to not order meals you can't afford.

The opinions expressed here are solely those of Mr. Schwartz.

Ted Schwartz, a Certified Financial Planner®, is president and chief investment officer of Capstone Investment Financial Group. He advises individual investors and endowments, and serves as the advisor to CIFG Funds. Because Schwartz has a background in psychology and counseling, he brings insights into personal motivation to advising clients on achieving their wealth management goals. Schwartz holds a B.A. from Duke University and an M.A. from Oregon State University. He can be e-mailed at ted@capstoneinvest.com.

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