With Black Friday upon us, many shoppers will be pulling out their credit cards – probably at 4 a.m. when retail doors open! It begs the question: do you manage debt or does debt manage you? What is “good” debt versus “bad” debt? APC president Paul Fain recently addressed your money and your debt on WBIR, Knoxville’s NBC affiliate station.
PAUL, GIVE US AN EXAMPLE OF “GOOD” DEBT…
Student loans help us get a college degree and lead us into a career.
- Average Debt for 2016 graduates: $37,172
- Student loans can be refinanced but be careful! Private lenders do offer competitive rates, but by leaving the federal system, you forfeit some unique features: income-driven repayment plans, deferment and forbearance.
WHAT ABOUT A HOME MORTGAGE – GOOD DEBT?
Mortgages can absolutely make the American Dream come true. A few tips:
Keep some savings in reserve: Don’t deplete your savings on the down payment and closing costs of buying a home.
Live within your means: a rule of thumb is that all of your monthly debt obligations, including the house payment, should not exceed 36 percent of your income before taxes.
Make the “rent vs. buy” decision very carefully:
- How long do I plan to stay in the area?
- Do I have enough money for a down payment?
- What about money for invisible costs: moving, decorating/furnishing, repairs?
SWITCHING TO “BAD” DEBT, GIVE US AN EXAMPLE:
Lending money to friends or family members
- Rule #1: make a policy of saying, “no.”
- Rule #2: help in other ways, set up a budget, pay for a money management course.
- Rule #3: if you do lend, get it in writing.
AND FINALLY LET’S TALK ABOUT CREDIT CARDS?
BAAAADDD debt. Too often abused. Here are some ways to improve your credit score:
- Keep balances low on credit cards.
- Don’t pollute your credit report. Pay off the smallest balances.
- Don’t open a number of new credit cards just to increase your available credit.
- Always pay on time.