First Time Finances: The Difference between Good and Bad Debt
As you start life in the real world, your financial needs begin to change. The simple savings account that served you throughout high school will no longer meet your needs. Apartments will want to check your credit history, and you may need to finance a reliable car for getting around town. There are plenty of ways to boost your credit score, but it’s important to learn which ones will serve you, and which you should avoid.
Look for Things that Appreciate
Houses appreciate, and an education allows you to improve your earning potential. Financing certain items like these is often considered good debt. If you’re considering taking a loan out for something, ask yourself what the long-term benefits will be of the purchase. If it will ultimately help you build wealth, like starting a business, then it can be considered good debt.
Disposable Items Should Never be Charged
Clothing, electronics, household goods, and even furniture are all disposable items. They don’t appreciate over time or build value, and will eventually be disposed of. The last thing you want is to be making payments on personal property that you’ve since gotten rid of. Resist the urge to buy these things and choose to pay cash instead.
It can be a double-edged sword that so much debt is considered bad, and yet you need to have some to build up that all-important credit score. This is why you should consider getting one credit card to be used judiciously, and kept on hand for emergency situations. Charge about $100 a month, and pay off the balance when the bill comes due.
Use a Credit Union
Credit unions offer members some great perks, including special rates on financing and other programs. You don’t need to apply for credit to join. The easiest way is to simply open a credit union savings account. By the time you are ready to apply for a mortgage or other loan, you’ll already be an established customer.
Avoid the Stores
One of the worst types of debt you can build is store credit. This is because the store cards usually have high interest rates of 21 percent or more, and you can only use them for in-house purchases of disposable goods. When you’re checking out at the mall, resist the urge to get a credit card in exchange for a nominal discount. It’s just not worth the temptation.
Protect your credit by learning about good and bad financial choices. When you understand how credit can hurt or harm you, it’s easier to keep your credit report and your finances under control.