There are two types of debt: good debt and bad debt. Most families, mine included, have a combination of good and bad debt. Our home, car, and sometimes useless stuff we buy everyday contributes to this.

Good debt is debt that helps you secure an asset. A prime example is property which you live in (capital appreciation) or rent out (capital appreciation plus rental income). Most of us won't be able to purchase such things in cash and hence, we will need to borrow this money.

Bad debt is debt that does not secure you anything (intrinsic joy unfortunately doesn't count). Examples are credit card debt, purchasing a car (yes, cars are not assets), and almost every retail purchase.

How do we reduce debt then? The principle is to reduce the effective interest rate you are paying. Look for opportunities from Debt Consolidation Services, which give you a better interest rate overall as well as advice on how to pay off your loans quickly.

Act now. Every day your interest is compounding.

This post is sponsored by CreditLoan.com.

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