Finance 101 - Debt

What I find shocking is the high percentage of students that are in debt before even graduating from college. Granted that everyone’s financial situation is different, but being in debt can have immense consequences. Being habitually late paying credit card bills or paying just the bare minimum will have a detrimental effect on your credit score. Thinking about buying a car and getting a car loan with a low interest rate? Think again. Your credit score is an important aspect for any financial institution reviewing a loan application. Having a low credit score will either force you into a high interest loan, which could price you out of the car you had in mind, or even worse, getting your loan denied.

Not only will debt damage your credit score, but it also increases the amount you have to spend on a purchase. As an example, you decide to buy a nice flat screen TV for $2,000. When that credit card bill comes you figure that you can get away with just paying the minimum , sometimes as low as 20 dollars. You just made your credit card company very happy. The next time your credit card bill comes you’ll notice that they’ve put on an interest charge of 6% to even as high as 14%. That TV you bought is now costing you a possible 300 dollars more than you had initially paid for.

What’s the best way to start paying off your debt and making some ground on your credit score? Cut up your credit cards. Paying with a check card is a much safer way to control your spending and will help ease the amount that appears on your statements each month. Look at your paychecks each month and partition an amount to decrease your credit card bill. If you don’t even have a paycheck to help you out then you probably shouldn’t have been spending money in the first place. The credit line that your credit card company gives you is basically a loan so you don't have to carry a wad of cash around with you and assumes that you'll pay back every penny every month. If you can't pay them back, don't spend the money. If the temptation is just to large then going cold turkey by cutting up your credit cards is the only way to stave off your addiction and protecting your credit score. As a young budding professional in college who doesn't have a stable income, it is better to not have a credit card than having a credit card with debt.