Debt is something you can learn about the hard way in your financial education. You open up a credit card, for example, to improve your credit score, and before you know it, you’ve built up a huge bankroll. Or you took out student loans to pay for school without understanding how repayment would work after you graduate.
One of the most important facts about money to know about debt is that not all debts are bad debt. While credit cards and payday loans usually fall into the bad debt category because of their higher interest rates, things like student loans or mortgages are usually considered good debt.
That’s because these debts either have low interest rates, are used to fund an investment in itself, or both. For example, taking out student loans to pay for the school could be beneficial if you graduate that will ultimately earn you a high-paying job. No matter what type of debt you are managing, keep the following tips in mind:
- Pay your bills on time or early every month.
- Try to keep the balance on your credit cards as low as possible.
- Keep older credit accounts open.
- Don’t apply for new loans too often.
- It is okay to use different types of credit (e.g., loans, credit cards) if you use them responsibly.
Following these guidelines can help you achieve better credit scores and prevent you from getting buried in debt. Also think about where something like that Chime’s Credit Builder Credit Card might fit in the picture to determine and boost your credit score over time if you are just starting out with credit.
The lesson: How you manage your debt is important as it directly affects your credit score. This can affect your ability to borrow money, receive utilities on your behalf, or even rent an apartment.
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