What is Bad Debt?
After reading "Rich Dad Poor Dad" by Robert Kiyosaki, my understanding of Bad Debt is the money that you owe to purchase liabilities. (For more details: Rich Dad What is Bad Debt?)
What is liability?
Liability is something that takes money out of your pocket. Common liabilities such as cars, vacations, own stay house renovations, weddings, electronics/electrical appliances, furniture, student loans, overdue credit cards bills, installment plans with interest, and more. (For more details: Rich Dad What are Assets and Liabilities?)
You'll will need to pay interests to all/most of the Bad Debt. These interests will affect your building wealth plans. Especially for Credit Cards, if you did not pay full payment on/before the due date, in most cases there will be late payments charges & interest charges. And if you did not clear the debt asap, the interest will snowball.
To me, if something that you bought though make you money but yet to cover the interest you owe (at a loss), I personally would still consider it as liability.
Recommendations
- Clear Bad Debt with the highest interest rates 1st if possible.
- Set a timeline to clear your each of your Bad Debt. Example: clear each Debt within 3 months or 6 months.
- Always make credit card full payments on time.
- Purchase stuffs that you can afford.
Let's build our wealth together.