Many people dream of getting out of debt. Perhaps you are one of them. The attractiveness and freedom of being free of debt, of not owing anything to anyone is an extremely attractive prospect, one that deserves serious consideration and action.

All debt is not the same. There are some types which are terrible to have; others are not so bad. So which is which?

It can be useful to sort debts into one of three groups: consumption debt, use debt and investment debt.

Consumption Debt is debt acquired to spend, use up, without any residual value. A good example would be cash you borrow to take a vacation. You borrow the money, expend it on the vacation and afterwards there is nothing of hard money value left. Oh, you will likely have some good memories and good feelings, but nothing that you could convert into cash

Most consumer credit card debt is consumption debt. Nearly all credit card debt is bad. It's the costliest and most demanding type of debt to have, with high interest rates and fees as well as rigid pay back rules. If you are delayed on a payment the terms can change and tighten up on you.

Consumption debt would be the worst kind of financial debt to have. It is to be avoided, and of course , if you already have it, you should be paying off credit card debt first.

Use Debt is debt that you will get with acquiring something to make use of, like a car, a truck, a boat or an airplane, for instance. Use debt is typically secured by something of value but that is depreciating every year. It's not good, but might be essential to give you something that you need to work or to transport yourself to work. It's bad, although not all that bad.

Investment Debt is debt people acquire in buying or acquiring assets that will generate income or cost savings in the future. Examples might be college loans to help you get a university degree or advanced degree, a home loan which lets you acquire a house, build equity instead of paying rent. Investment debt puts money-making or perhaps saving assets that you can use under your own control.

Investment debt, to acquire real money-making resources can be almost a good thing. Better than doing without and not having the ability to generate the income or save the money that the assets acquired can offer.

When you are paying off debt, you will want to pay off credit card debt first. Investment debts would be the last to be paid.

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