How to Make Debt Work For You
Being debt-free is an amazing feeling, I assume. For pretty much my entire adult life I’ve always had some kind of debt. It’s a similar story for many Americans, regardless of age.
There are many people out there, some of them successful financial advisors, who will tell you to avoid debt at all costs. The sentiment makes sense, but I believe this to be impractical advice for many.
Using credit (and therefore accruing debt) can actually help improve your situation in a variety of ways. The key is being able to accurately identify what is causing your current pain point, and how you can solve that problem.
All debt is not created equal.
What I mean by this is that there are certain types of debt that will improve your situation and credit score in much better ways than others. A car loan for example can provide you vital transportation for your career, which in turn allows you to pay for the car loan. As long as you abide by the regular budgeting principles of not taking on a payment higher than you can afford, this can be a very beneficial investment for you and your future. Student loans and mortgages can also be positive investments towards your future and often have lower interest rates than other types of loans.
Payday loans, for example, should be avoided at all costs. Payday loans are small-level loans with huge interest rates. It can lock you into a horrible cycle of needing a payday loan, then using all of your paycheck to pay it off, over and over again without getting anywhere in improving your situation.
A credit card is your friend.
One of the best and fastest ways to improve your credit is to use a credit card. Even with low or no credit history, most people can get approved for at least a few hundred dollars. And that’s fine, that’s all you need to start building a pattern of positive spending habits.
You need to use the card a little bit, such as for the essentials of gas and groceries. And then pay it off in full if you can at the end of every month. If you can’t pay it off in full, you want to pay as much as you can, and at least more than the minimum payment require.
This is one of the best and fastest ways to raise your credit score. As your credit score (and your income) increases over time, you can increase the limit on the card which gives you the benefits of having more of a buffer should an emergency arise and actually helps your credit score even more if you can keep a lower balance on a higher limit card.
Credit cards are nothing to be afraid of, you just need to use them responsibly. They can really help you improve your situation in a bind as long as you have a reasonable plan to pay off any credit card debt quickly.
Take it one step at a time.
If you have a lot of debt from a lot of different sources, it can feel overwhelming. I have definitely been there, that crushing feeling can become paralyzing so you don’t know what to do. Take a step back and start by identifying the most pressing problem. Brainstorm all of the ways you can address and resolve the problem. Create a plan of attack, and only once that’s been completed should you move onto the next problem.
Getting out of financial problems can take a long time. But as long as you make efforts to improve your situation there will be a light at the end of the tunnel. You must make sure you don’t fall into poverty mindset and that you keep a positive, forward-thinking attitude at all times, even in times of setback.