Would you believe that not all debt is bad? Our grandparents would be rolling over in their graves if they could hear this. Our not too distant relatives that survived the Great Depression would argue the difference and rightly so. Back then when the banking institutions ran out of cash, they called debts and notes due in 30 to 60 days. Homeowners who were mortgaged during this time could not raise the funds necessary to pay the banks back. The ending result was that many good American people lost their homes. Because of this, our grandparents and great-grandparents told their children that all debt was bad. Back then, it was. New laws have since changed how and when a bank can call a note due.

So, I emphasize that not all debt is bad. It really depends on a lot of factors such as your income, the nature of the debt and your tax bracket.

The interest on preferred debt is tax deductible while non-preferred debt interest is not.

Preferred debt includes the interest of your mortgage (mortgages, equity loans and equity lines of credit). This is usually the single largest tax deduction most Americans can claim on their Schedule A for the primary home and Schedule E for investment properties. One way to look at it is by letting homeowners write off their mortgage interest, the IRS is assisting us to pay the bill. Tax-deductible interest is a preferred expense due to either receiving an IRS tax refund or owing less than you would have.

Items that fall in the non-preferred debt category would be auto loans, credit cards, signature loans, personal loans, and student loans. At one time the interest from these loans was tax deductible. Changes in the tax code have moved these into the non tax-deductible non-preferred debt category.

Understanding the difference between preferred and non-preferred debt empowers Americans to improve their net worth. Acknowledging and acting on this concept they realize they can use leverage (OPM) to reposition their home equity dollars while improving their monthly cash flow. This same concept can benefit individuals who are already debt free by helping them improve their net worth by using tax advantage mortgage interest to leverage property and free up otherwise non-liquid funds to invest in safe conservative investments that accumulate money with the beauty of compound interest. Either you are earning interest, paying interest or forgoing the ability to earn interest. The choice is yours.

With proper mortgage planning and the correct, safe, conservative investments, your future could be very brilliant.