How can you use credit wisely (to your advantage) instead of it getting in the way of your life?
It is difficult to enjoy life carrying around a huge debt load. That leads to stress and ulcers. It can be the No 1 reason why a lot of marriages break up. As people talk about everything but their finances when getting together.
The first thing to do to manage your debt is take a look at all the bills and debt you have now. You need to distinguish the difference between bad and so-called good debt.
Let’s start with the good: this is the debt that helps you meet your mid- and long-term goals.
A student loan that makes it possible for you to get a well-paying job is a good debt. But it can become a bad debt if paying off your student loans is going to take most of your income for numerous years after you graduate.
A few years to pay off a student loan is OK, but not more than say four years.
If buying a car is needed to help you get a good job or because of where you live public transportation is not available. This would be a good debt to take on if you cannot purchase a vehicle outright.
Borrowing to start a business or buy a home would be good debt as well.
Bad debt is when you use credit for a short-term purchase. These are more lifestyle items.
Using credit cards for clothing, groceries or other things that are consumed or worn out quickly represents bad debt.
Buying lunch and putting it on your credit card is OK if you pay it off before the grace period ends and the interest charges start.
Depending on the card or loan, you can quickly end up paying double for the item you purchased.
Before whipping out the plastic, ask yourself is the purchase really necessary? Is it going to be worth the cost if you can’t pay it off right away? Would saving up and making the purchase be a better option?
While we are discussing credit cards, let’s go over some of the basic dos and don’ts to protect your credit rating. This will help with being sure you are using your credit responsibly as well.
A big no is making numerous credit applications in a short period of time. You can look up your credit rating at place like Equifax Canada. But when a lot of companies start making inquiries at the same time on your behalf, banks get nervous.
Are you going to have more debt than you can handle? Often your credit score will be lowered. Do pay off all debt as soon as you can.
Be sure to make your payments on time. Allow at least a week if you are mailing a payment and give yourself two to three business days when paying online. Late payments affect your credit standing.
Lastly, make sure you are making at least the minimum payable amount due on your statements.
Sandra Nolan is a freelance columnist from Rocky Mountain House. Contact her at slnolan@xplornet.com.