Ranking The Best Passive Income Investments helps you strategize on developing retirement income. Over the years, the rankings have changed because economic situations have changed.

In this post, I thought it would be a good idea to rank the best and worst types of debt as well.

When used appropriately, debt can help provide for a better life and make us wealthier. When used inappropriately, however, debt can destroy our lives.

The key is to always use debt in a way that positively helps get us to our financial goals in an as risk-appropriate manner as possible. In this incredibly low interest rate environment, the use of debt is going to increase.

Therefore, I think it’s important to come up with a framework for ranking debt today. We must be careful with our debt usage, especially during this time of uncertainty.

Lending money to friends, family, and strangers is a tricky situation. I’ve argued why you should never ask to borrow money from friends or family. If you do, not only would you sully your honor, you will disappoint your parents, and potentially lose your friends.

If you do end up borrowing money from friends and family, my assumption is that as a Financial Samurai, just like a Lannister, you will always pay your debt back in full.

But this is the wrong assumption because some people simply have no honor. They are the takers in this world who mainly think about themselves.

If everybody honored their debt obligations, there would likely never be a financial crisis that destroys the wealth of millions. However, as we all know, crazy things happen all the time.

Bad lending outcomes is one of the main reasons why I rank P2P lending as the worst passive income investment.

I’d like to share several sad stories from Financial Samurai readers who lent money in good faith. Neither of their stories ended well. However, there are some great lessons.

Debt is an interesting animal. Most of us get into debt because we WANT something we cannot afford. We want a private school education so we borrow $50,000 to learn something we can learn for free on the internet. We want to live a fabulous lifestyle in our 20s so we put everything from fine dining to designer clothes on our credit cards. We want to stop paying rent, so we leverage up 4:1 to own a property that will crush our finances if we need to sell in a down market.

Make no mistake about it. Debt is a manifestation of greed. Which means I’m one greedy bastard! I wanted to live a nicer lifestyle and I wanted to get rich as young as I possibly could. In my 20s and early 30s, the biggest risk I feared was not taking enough risk.

Some of you might be thinking you aren’t greedy for having debt. But deep down, you know what I’m saying is true. Not only are you greedy, you’re impetuous to boot. But don’t be ashamed. If managed properly, greed can often be good when it comes to reaching financial independence sooner.

In this post, I share with you my debt history followed by a debt optimization framework to help you build wealth faster while minimizing the chances of a financial blowup.

When it comes to money there are a couple rules I encourage people to follow.

The first rule is: Never tell anybody how much you truly make. You can share a portion of what you make, but not the entire number. Be particularly careful if your income is more than 50% higher than the median or average income for your age. A portion of people can’t help but become envious and despise you if you make more than them.

The second rule is: Never ask to borrow money from friends and family. As soon as you ask to borrow money from friends and family as an adult, you lose their respect and honor for you. And if you are a Financial Samurai, you value respect and honor above all else. Asking to borrow money from the people you care about can lead you down a deep dark hole.

Let me share with you a short story about how one man asked to borrow money from his close friend and girlfriend and what happened after. I’ll also share with you reasons why asking to borrow money is one of the worst financial moves you can make.

The worst type of debt is consumer debt.

One reason why consumer debt is so bad is due to people buying things they really don’t need: a fifth pair of designer jeans, another luxury watch, every electronic gadget imaginable, and so forth.

But egregiously high credit card interest rates are the main reason why consumer debt is the worst type of debt for your finances. If you keep revolving credit card debt, you will likely stay poor forever.

Let’s take a look at the current average credit card interest rate.

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.}