Debt is something you may learn about in your financial education the hard way. You open a credit card to try and build your credit score, for example, and before you know it you’ve racked up a huge balance. Or you took out student loans to pay for school without understanding how repayment would work once you graduated.
One of the most important facts about money to know about debt is that not all debt is bad debt. While credit cards and payday loans typically fall in the bad debt category owing to their higher interest rates, things like student loans or a mortgage are usually considered good debt.
That’s because these debts either have low interest rates, are used to fund some type of investment in yourself, or both. Taking out student loans to pay for school, for instance, could be beneficial if it helps you earn a degree that eventually lands you a high-paying job. No matter what kind of debt you’re managing, keep these tips in mind:
- Pay your bills on time or early every month.
- Aim to keep the balances on your credit cards as low as possible.
- Keep older credit accounts open.
- Don’t apply for new credit too often.
- It’s okay to use different types of credit (i.e. loans, credit cards) if you’re using them responsibly.
Following those guidelines can help you build a better credit score and keep you from ending up buried in debt. Also, consider where something like Chime’s Credit Builder credit card might fit in the picture for establishing and growing your credit score over time if you’re just getting started with using credit.
The Lesson: How you manage your debt matters because it directly affects your credit score, which can impact your ability to borrow money, get utilities in your name, or even rent an apartment.