Debt in itself is not a bad thing. There are different types of debt some of which can help you grow your wealth over time and others may hinder your wealth creation process. Knowing how to use debt correctly is the key.


Rule Number 1 : Your debts should not be greater than the current value of your assets. If you break this rule it is a good indication that you have borrowed for the wrong reasons. Think carefully before you borrow any money and always consider saving for your purchase first.

Rule Number 2 : Lifestyle debt is a luxury which does not assist in wealth creation. This debt is best avoided. Asset backed debt (such as home loans or investment mortgages) represents good debt and if used correctly, can, over time, help you grow your net worth.

Rule Number 3 : Learn to say NO to credit card offers. If you are already in possession of a number of credit cards, and your credit is good – you are the credit card customer everyone is chasing. Chances are you receive regular credit card offers from new providers and offers to raise your credit card limits from existing providers. While it is tempting to accept these offers, over time they can get you into a spending cycle with no way out.

Below are some tips you can follow to make a start towards financial freedom:

• Review all your debts regularly
   
• Combine debts into one low cost loan with one monthly repayment – this is known as Debt Consolidation.
   
• Close credit card and store accounts and have the discipline not to obtain more.
  It may be appropriate to retain one card if it has an interest free period and is part of your budget process
   
• Try and pay off your credit card balance at the end of your interest free period to avoid incurring interest costs.
   
• If you do retain a credit card then ask the institution to reduce the limit to the minimum needed - this should be what you can comfortably repay each month
   
• Most importantly a disciplined approach is needed to ensure debts are not increased to fund unnecessary purchases - a good rule of thumb is that your liabilities should not exceed your assets - if they do - it probably means you have borrowed for the wrong reasons
   
• Remember IT IS NEVER TOO LATE to take back control. Many people get themselves into trouble with debt. The worst thing you can do is try to hide it or ignore it.
  Work out a Budget and stick to it.