Personal Debt Management

Building Your Credit with Good Personal Debt Management

Itseems like as soon as you land your first job, you start getting bombarded withcredit card and financing offers in the mail. While the word “debt” is usuallyperceived as a negative term, some debt is actually good. If controlledproperly, debt can help you build your credit score so you can finance largepurchases like a car or new home. The key to good personal debt management is understanding how good forms of debtcan be used to boost your credit.

Cars

Formany people, buying a new car is the first step toward establishing a credithistory. Car loans are generally available in terms of 36, 60, and 72 months,with each month’s payment including interest and tax. Unless you have asignificant chunk of cash to put down, a shorter term usually means a largermonthly payment. 

The benefit is that you end up owning the car much morequickly than you would with a long-term loan. On the other hand, a longer termmeans more interest. Taking out too long of a term could also result in youpaying more money than the car is actually worth. When factoring a car loaninto your personal debt managementplan, consider your overall monthly budget and select a car that allows you topay off the loan in the shortest term possible. Managing car loan debtresponsibly will help you build good credit while staying within budget.

Credit cards

It’seasy for credit card balances to spiral out of control, so it’s important touse this form of credit as wisely and sparingly as possible. You should treatcredit cards as a personal debtmanagement tool to increase your credit score. Having some amount of creditavailable to you can raise your credit score, but maintaining too large of abalance on your cards can lower it just as quickly. According to financialexperts, credit cards enhance your scores when you use between 10 to 20 percentof your credit limit – and no more. 

A large credit card balance can take yearsto pay down. Avoid large purchases and resist the temptation to take advantageof credit card offers with high interest rates. Otherwise, you will likely endup paying far more for purchased items than if you had simply saved up and paidcash.

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