Give me Credit, for Debt sake!
Debt (noun)
something, typically money, that is owed or due.
Managing and eliminating debt is a common struggle that many people face. Debt is money, in the form of a loan or credit, that you owe and have to pay back. Some common debts consist of:
Credit cards
Student loans
Personal loans
Mortgage
Debt eats away at your net worth. If debt is not managed correctly, it will destroy your credit and can lead to bankruptcy. Avoiding debt by any means is the goal, unless your debt is making you money (real estate, business, etc.).
Credit (noun)
the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
an entry recording a sum received, listed on the right-hand side or column of an account.
Credit is the American dream. Nearly every company will offer you credit for their products or services with incentivized rates to lure you in. Credit is money that is loaned to you up front, but you must pay it back with INTEREST. Credit can be a blessing, but it can also quickly become a burden if you don’t pay it back on time. Late fees are nothing to play with!
In order to build your credit, you have to get and use credit. But, you have to be extremely careful with managing your credit. It is easy to sign up for a credit card, but it’s a lot harder to pay it off and stay disciplined with the usage. Maxing out your credit card takes no time, but paying off your balance can take forever. The minimum monthly payment that is required for your credit card mainly covers the interest, so it can take years to pay down the principal balance. In fact, your minimum monthly payment actually just pays the credit card company for loaning you money because they keep the interest. By paying the minimum payment required monthly, you are just stretching out how long it takes to pay off your credit card balance and paying much more interest than you would with no balance.
Be smart when dealing with credit. While it can be helpful, it can also easily destroy your credit score and create unnecessary debt.
Helpful tips for dealing with credit include:
AVOID pointless credit cards. If you don’t have the money to pay for it in full or pay it back, you don’t need it.
Always pay more than the minimum payment required. Pay double if you have it. This ensures more money goes towards the principal balance.
Pay attention to the interest rate that you are offered. The average rate for a credit card is 17%. That’s how much money you are being charged for borrowing money. The lower the interest rate, the better. An interest rate of 0% is ideal, but you have to pay the balance off quickly before an interest rate accrues.
Credit card utilization can have a big impact on your credit score. Keeping your credit card utilization under 50% is important to maintaining a good credit score. The lower you keep your credit card utilization, the higher your credit score will be.
Manage and monitor your credit at least monthly. This allows you to be aware of your financial position.
Secure credit cards are a great way to build your credit because you are spending your own money that is required as a deposit to get a secure credit card. An unsecured credit credit is money that is loaned to you that you have to pay back with interest.