Credit and Debt Management

How to Use Debt Responsibly

When credit card offers are rolling in, it can be tempting to take advantage of the various promotions and promised rewards. While credit cards have many benefits and establishing credit is wise early in adulthood, a lack of discipline with your credit usage can easily create an undesirable financial situation. Understanding the key components of selecting the right type of credit and incorporating the use of credit into your budget can alleviate the risk of developing unmanageable debt.

One of the most important aspects of your long-term financial plan is developing a history of good credit. Having good credit signals that you are financially responsible and allows you to borrow funds to cover anything from day-to-day living expenses to educational expenses or a new car or home purchase. However, just because you have access to additional financing does not mean you should borrow more than you are able to repay in a timely manner. Credit cards and loans charge interest on the funds you borrow for the convenience of using them to finance your purchase. Depending on how high this interest rate is, the amount you owe can snowball out of control very quickly, potentially setting you up for a lifetime of financial burden.

To establish credit, start small. Educate yourself on your options and review potential credit card offers for credit limits, interest rates (also known as APRs), and other borrowing terms. Create a budget and don’t overspend. Developing good credit is easy if you are disciplined, but bad credit and debt can be very difficult to overcome.

Related Resources: Using Debt Wisely

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