Chapter 3. Consider Your Credit and Debt

All complete budgets should include an expense category for credit and debt payments. Now that you've got that budget set and you have a fund growing for emergencies, it's time to think about your Credit and Debt.

Credit is an agreement between a borrower and a lender to borrow money.  If you have a credit card balance, car loan, mortgage, or a student loan, you are considered to be in debt and building credit. The longer it takes to pay off debt, the more debt will ultimately cost because we are charged extra for the privilege of borrowing money. This extra charge is known as interest. As soon as you borrow money, you begin building your financial reputation based on how efficiently you repay that debt. Your credit score is a number that communicates your financial reputation to lenders. You can think of it like a financial GPA. Having a high credit score will increase your ability to borrow money when you need it and demonstrate to others your financial responsibility and creditworthiness.

         How do you maintain a good credit reputation? 

Rule of Thumb: Borrow only what you can afford to pay back and always devise a plan for repayment.

If you have debt, here's a plan you might follow:

 

Some considerations around responsible use of credit cards and student loans, and using debt in our favor, are that not all debt is bad debt. Responsible use of our credit reflects favorably in a credit score and the benefits of good credit are many.

 

Practice

Figure out what your financial reputation currently is by looking up your credit score. This can be found for free online or through a banking app. We recommend you check out your credit report as well, as it contains all of the information about your various accounts, loans, credit cards, and your personal information. You can go to annualcreditreport.com for a free credit report.

 

Now that you know how to consider your credit and debt, think about paying it forward and discuss these considerations with a friend or a family member.

Want to learn more about Credit Cards? Click here for the Credit Cards module in our MoneyCounts Series.

Want to learn more about Student Loans? Click here for the Student Loans module in our MoneyCounts Series.

Want to learn more about Debt Management? Click here for the Debt Management module in our MoneyCounts Series.

Want to learn more about FICO Credit Score? Click here for the FICO Credit Score module in our MoneyCounts Series.

 

Congratulations! You can move on to Chapter 4. Plan for your Future

To review the full module on Financial Literacy Overview (FLO), click here. 

 

This was made possible in partnership with The Singleton Foundation for Financial Literacy and Entrepreneurship. This video and more videos like this can be found on Millionstories.com Links to an external site..