Credit & Debt

Used wisely, credit is a wonderful money management tool.  In fact, few of us would be able to own a house or vehicle without it!  In addition, credit cards offer the convenience of buying what you want without having to carry around large amounts of cash.  So it's true--credit definitely has its virtues.  However, credit problems can quickly burden individuals and families, so it is important for consumers to understand the pitfalls of credit before they choose to utilize it.

First,  when you are offered credit, you should know that you are really being given the chance to use someone else's money with the promise to pay it back and this is a privilege.  When you pay back the original amount you borrow, known as the principal, you will also be charged an additional amount for the privilege of using credit. This additional amount is known as interest.  To put it simply,  credit = principal + interest.  And, when you use credit, you really need to do the math.  Think about how much it is really going to cost you and consider the alternatives.  Do you really need the item you're about to buy?  Can you wait until you've saved enough to purchase it with cash?  Have you gotten the lowest interest rate available?  How long will you be using credit?  Remember, the interest rate and the amount of time you hold the loan (or the amount of time it takes you  to pay off your credit card balance) greatly impact the cost of credit.  The higher the interest rate and/or longer the loan, the more money you will pay on top of the principal.

Paying interest on a loan for a long time, say 30 years, is not always a bad financial decision.  For instance, at the same time you are paying on a 30 year, low interest home loan, you are building equity in your home and providing your family with a stable place to live.   However, if you charge $500 worth of pizzas, movie tickets and clothes on your credit card at 18% APR and only pay the minimum, it will take you almost 4 years to pay it off and it is likely that the things you purchased will be long gone. 

Don't get burned by credit!  Join us for the Exploring Credit and Debt Management Workshop to learn more wise credit and debt management strategies. Please call (607) 272-2292 for more information.