There are two different categories of debt you can accumulate:

1. Personal Debt
Personal debt, often called "bad debt", results from the purchase of an asset that will likely depreciate in value over time. This includes borrowing for such items as a new car, clothes, or furniture. Going into debt to finance a vacation or go out to eat is one of the worst offenders of personal debt. Bad debt offers short-term pleasure in place of long-term anguish.

    Note: With personal debt, it's important to note why you have it in the first place and to what degree it's necessary. Financing a car because it gets you to work or school may be an acceptable form of personal debt. Each situation should be weighed differently.

2. Investment Debt
Investment debt, often called "good debt", results from the purchase of an asset that will likely appreciate in value over time. This includes borrowing for an education, the purchase of a new home, or even starting a new business. The tax deduction alone on mortgage interest makes investment debt one of the more acceptable types of debt.

3. Debt Payments

When it comes to making debt payments, some debts are more essential than others. The following list will help you determine which of your debts require top priority for payment if you're in financial straits:

Essential (must pay)

• Mortgage payments
• Car payments
• School loans
• Secured loan payments
• Income Taxes
• Medical bills
• Utility bills
• Health Insurance