Smaller debts have a lower debt ratio.

The debt-to-income ratio is a simple equation that shows you how much of your income goes to paying debts each month. It’s calculated by dividing your total monthly debt payments by your gross monthly income.

Here’s an example: Say you have $5,000 in student loan payments and $2,000 in car payments each month. Your total monthly debt payments would be $7,000 ($5k + 2k), which would be divided by your gross monthly income of $10,000 to get a debt ratio of 70%. The higher this number is, the greater risk you are taking on as a borrower because it means more of your hard-earned cash will go toward repaying loans or making other financial commitments like rent or mortgage payments instead of saving for retirement or buying groceries for the week.

Diversifying your portfolio reduces risk.

Diversifying your portfolio is a good way to reduce risk. Diversification means having some of your money in different investments, so that if one goes down, another will go up. For example, if you had $100 and invested all of it in 1 stock (or any other type of investment), then if that stock goes down 50%, you would have only $50 left! But if instead you spread out your money among several different companies or investments, then one company going bad won’t hurt as much.

If you don’t already have a diversified portfolio, here are some guidelines for how to create one:

• Spread out across multiple asset classes – This means putting money into different types of investments like stocks (also called equities), bonds (also called fixed income securities), real estate, etc., rather than just sticking with one kind of investment (like stocks).
• Invest in mutual funds – Mutual funds are professionally managed pools of capital from investors who pool together their funds and invest them according to the fund manager’s investment strategy. It’s not just about getting rich quick; there are many other benefits including diversity protection against poor performance by individual securities over time because there will always be at least some holdings doing well at any given time due simply because they’re part of large diversified portfolios like those managed by professional investors (but remember: no guarantees!).

You’re not willing to live with any debt.

Having debt is a bad thing. You should never have any debt. If you don’t have the cash to buy something, then don’t buy it—period. This is especially true if you’re using credit cards or loans to make your purchases. Credit cards are evil and will destroy you financially if used improperly, so they can be eliminated from your life entirely. If you need help getting out of debt and learning how not to use credit cards anymore, check out the book [The Total Money Makeover](https://www.amazon.com/Total-Money-Makeover-Completely-Personalized/dp/140131670X).

You can spend less than you currently do, but you must still be careful with what you spend it on.

• You can spend less than you currently do, but you must still be careful with what you spend it on.
• You can spend less than you did in the past.
• You can spend less than you plan to in the future.
• You can spend less than other people.
• Spend less than your income allows (but don’t forget that sometimes, it’s OK to splurge).

Only unnecessary, short-term debt can be considered “good” debt.

Only unnecessary, short-term debt can be considered “good” debt.

Good debt is not necessarily good because it makes you rich; rather, good debt is a tool that helps you save money or invest your money in ways that reduce risk. For example:

• Student loans are a form of good debt because they help young people gain valuable skills and education, which they can then use to get well-paying jobs that allow them to pay off their student loans faster than the average person. It’s also worth noting that student loans are an important source of funding for many worthwhile causes like research funding for higher education institutions, scholarships for low-income students, and other forms of financial aid for students who need help paying for college.
• A mortgage on an investment property is another example of good debt because it allows someone investing in real estate assets—such as homes—to buy properties that generate income from tenants while also reducing risk by locking in interest rates at lower levels than currently available today.

To get the best return on your investment you need to take risks, but only in certain places.

When you’re choosing a debt to invest in, you need to make sure that the return on your investment will be worth it. To get the best return on your investment, you need to take risks. But only when it’s smart for you.

There are some types of debt that are not worth taking because they can cause more harm than good—like credit card debt. Credit card companies charge high-interest rates and fees, which means that if you use them wisely they may actually cost more than they save (because then there’s no profit). In addition, if something goes wrong with one item bought with a credit card—say a car breaks down—the whole balance gets wiped out at once by defaulting on payments until things get sorted out again (this is called “going into collections”). This means that even though there may be little risk involved with using one credit card per month for groceries or gas money (since most people pay off their monthly statement before interest kicks in), there is still plenty of risk involved

The right kind of debt can be a great way to save money, invest it and reduce future risk.

The right kind of debt can be a great way to save money, invest it and reduce future risk. Here are some examples of good debt:

• Student loans (but only if you’re paying the interest on them)
• A mortgage on your home
• A car loan or lease