Bad or Good Debt?
As I may have mentioned before, I took on a lot of debt to start my investment career. I maxed out the majority of my credit cards doing balance transfers and the like. While this has worked out well for me I don’t recommend doing it. I estimate about half of the money I used was lost to poor investments or scams. The other half has been performing quite well and is slowly making up for the lost half. However, in the mean time I have a significant amount of debt and a low credit score. When I initially entered into debt my credit score dropped 100 points in a month and has gone down more since then.
I’d really like to purchase a house to live in instead of wasting my money on an apartment. However, it will be quite hard to get a reasonable interest rate with my current credit score. Even so, I’m still better off buying. However, if I can reduce my debt and bring my score up I’ll be much better off. Not only that but I’ll lower my monthly payments allowing more money to stay in my investments.
There are a few ways of reducing debt and payments. One is to pay more towards the balances every month. While I have been paying above the minimum it really doesn’t make much sense to do this. The 14.99% APR interest my worst card has is much less than what I’ve been making off my investments. Assuming I can maintain my returns at a rate higher than that I would be better off staying in debt and compounding my earnings. Taking this into account I don’t want to use money from my investments to pay down my debt anymore than making just over minimum payments. However, if I can get the money elsewhere I don’t mind using it to reduce my debt. I suppose the return would be a bit higher if I put the money into my investments. However, I feel that I’ll be better off getting out of debt sooner rather than later.
The question is, where else can I get money from? There are two ways I have thought of. One is reducing or eliminating other monthly expenses such as my storage unit. This is money that I’m already spending so it won’t be missed. Rather than wasting it on eating out or some other luxury I can use it to reduce debt.
The second method is selling belongings that I no longer need or use. I’ve been doing this for quite some time now. I’ve sold off almost half of my DVD collection, extra computer components, and other items I owned. Not only did this bring in extra money but it helped reduce the clutter in my apartment. I still have boxes of stuff to sell, I just haven’t gotten around to listing the items on eBay. I’ve sold off most of the valuable items. Now I’m left with $5-25 things that are a bit of a hassle to list and ship. All combined they will still equal a significant amount of money. The proceeds will be used for everyday living expenses and paying down debt.
The next way is reducing the interest rate. This allows more of each payment to go towards the principal balance and reduces cost. I just evaluated my card rates and found most to be quite good. The majority of my rates are below 10%. The few that are above 10% are the ones I’m focusing on either paying off or reducing the rates. I already got one reduced and I’m going to be contacting the others today. I can always do a balance transfer from a lower rate card to a higher rate card, assuming there is credit available on the lower rate cards.
By doing these simple things I can get my debt paid off faster and reduce its cost. The money I’m spending on credit card payments is enough to buy a pretty nice house with a 20 year mortgage, with enough left over for a car payment or additional mortgage payments. Unless I hit an unexpected windfall in the stock market it will take me years to get the debt paid off. However, considering that I used this typically bad debt like good debt for investments that have allowed me to live without a regular job, I’m more than happy to accept that burden 
