The 8 Kinds of Debt You Must Navigate as a Young Adult

Debt is unavoidable, so you need to manage it the right way

Paying off debt is the top financial priority of anyone living in debt.

Long-term goals like investing and retirement planning are so far into the future that they feel abstract. You won’t feel the benefits (consequences) of investing (not investing) for decades down the road.

But debt?

Anyone who has lived with debt knows the crushing feeling of that debt every single day. This makes getting out of debt the financial goal that people are most motivated to achieve.

Debt is also unavoidable—especially for young people who have to grapple with the historic costs of education and housing.

Rather than subjecting you to a 10,000-word post, I’ve broken the topic of debt into three parts, which we will cover in the coming weeks in the Dollars & Decades series:

• In this first part, I explain why debt is not evil and how to navigate the eight most common forms of debt.

• In part two, I’ll review the importance of your credit score, how debt impacts your credit score, and how to repair it.

• In part three, I break down the most effective strategies to pay off debt and give you a spreadsheet that will tell you exactly how to pay off your debt ASAP.

At the end of all this, I’ll provide a PDF/E-Reader file combining all three posts that can serve as your ultimate resource to navigate debt.

Debt is not evil. It’s a tool to use with caution

Many people think that debt is evil. When you think of the millions of people who have declared bankruptcy and have spent the majority of their lives living in debt, you can understand why people believe that debt is evil.

Debt is simply a financial tool that allows you to buy something if you don’t have enough money available to make the purchase using cash.

Debt is no more “evil” or “bad” than a physical tool like a hammer. It is the misuse of this financial tool that causes pain and suffering to so many people.

If you use debt in the right way, it has the potential to increase your wealth and improve your life.

If you use debt in the wrong way, it will take you down the path to financial misery.

Let me be clear on what I mean when I say, “If you use debt the right or wrong way.” Four factors will determine if you are using debt properly:

1.     The type of debt you are using.

2.     The purpose for which you are using that debt.

3.     How much debt you take on.

4.     The interest rate and repayment terms of that debt.

The 8 kinds of debt you need to know about

This ranking is my opinion, starting with the worst kind of debt and ending with the least bad.