Debt
The Third Pillar of Financial Wellness.
Reducing it frees cash and lowers stress.
1) Emergency Savings Account
2) Budget
3) Debt
4) Insurance / Protection
5) Investment / Retirement
U.S. Household Debt is at an All-Time High
Total U.S. household debt continued to grow, reaching approximately $18.8 trillion as of the fourth quarter of 2025, according to the Federal Reserve Bank of New York’s Household Debt and Credit Report. This represented an increase of about 1.0% ($191 billion) from the previous quarter.
To Start, Here’s Why Paying Debt Off is Important
Carrying excessive debt can have detrimental effects on one’s financial well-being. Here’s why paying it off is crucial:
Interest Costs: Interest costs can accumulate over time. By paying off credit cards, individuals can save money on interest payments and redirect those funds towards savings or investments.
Credit Score: Negatively impacted credit scores make it more difficult to qualify for favorable loan terms in the future. Paying off your credit cards on time improves credit utilization ratios and demonstrates financial responsibility to creditors.
Financial Wellness: Paying your bills on time frees up cash flow. It provides individuals with more flexibility and control over their finances. Individuals can save for emergencies, and invest for the future.
Reduced Stress: Paying off debt improves mental and emotional health and quality of life.
When paying off your debt, keep in mind:
THE AMOUNT YOU OWE
THE MINIMUM MONTHLY PAYMENT
THE INTEREST RATE
THE DUE DATE
Good Debt:
Good debt typically refers to borrowing money to finance investments that have the potential to increase in value over time or generate income. Examples include:
Education Loans: Investing in education is often considered one of the most valuable investments a person can make. Student loans help people learn skills for higher-paying jobs.
Mortgages: Buying a home is often the most significant investment individuals make in their lifetime. A mortgage allows people to purchase property, build equity, and potentially benefit from appreciation in real estate values over time.
Small Business Loans: Entrepreneurs often rely on loans to start or expand their businesses. These loans can lead to increased income and wealth creation.
Investment Loans: Borrowing to invest in stocks, bonds, or other investment vehicles can potentially generate returns that exceed the cost of borrowing. This strategy, known as leveraging, can accelerate wealth accumulation if managed prudently.
Bad Debt:
Bad debt refers to borrowing for purchases that do not appreciate in value, and do not contribute to long-term financial well-being. Examples include:
Credit Cards: Using credit cards to finance discretionary expenses or to maintain a lifestyle beyond one’s means. This can lead to a cycle of debt accumulation, high interest payments, and financial stress.
Auto Loans: While reliable transportation is important, a high-interest loan can lead to paying more than the car’s value over time. Additionally, vehicles typically depreciate in value.
Payday Loans: These short-term, high-interest loans are often used by individuals who need quick cash but lack access to traditional forms of credit. Payday loans can trap borrowers in a cycle of exorbitant fees and interest rates.
Consumer Loans: Financing non-essential purchases, such as vacations, or luxury items can lead to unnecessary financial strain.