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What Your Parents Didn’t Teach You About Debt

By: kjmena

Our parents try to teach us everything they know so that we can be prepared to go out in the world but sometimes they forget some pretty important subjects. Maybe it’s because they don’t know enough about credit and how it works or they have bad credit and don’t want to admit it.

Well this can lead to some serious consequences because the best way to stay out of debt is knowing how not to go into debt in the first place. Being completely knowledgeable about debt and how you get into debt and how to get out of debt is the best foundation for being debt free.

All Bills Can Incur Debt

No bill is safe from falling into debt. From your utilities all the way to your medical bills, you can incur debt on any number of these bills. Unlike normal credit though, these bills won’t incur interest over time since you didn’t spend borrowed money to pay them, however, you might be charged late fees and administrative fees over time when you don’t pay them.

They can also increase if they end up going to a collection agency, which is where they really start affecting your credit score and personal finances.

Credit Cards Aren’t Your Friends

All those fancy looking cards with low minimum fees sound fun at first right? Well they can be the death of your credit. Making sure that you don’t go credit card crazy is important in order to not fall into debt. You should be very careful when applying for credit cards. Make sure to read the fine print and know your options when it comes to interest rates and late payments.

Being credit savvy is key to making sure you don’t take out dozens of credit cards and plan correctly for the future.

Save, Save, Save and Save Some More

You know that little piggy bank that your parents got you, for your loose change and coins as a child that was actually the most fiscally responsible tool for your life. That piggy bank represents the most important thing you can do with money and that is saving it.

Savings can be the quickest and simplest form of getting and staying out of debt.  Think of it as your back-up plan a.k.a. your “Plan B.” This is your safety net if your personal finances start taking a dip for the worst. You won’t need to worry about having to borrow more money or being short because you will already have a decent amount of money saved for your bills.

Opening up a savings account is crucial for saving money and will help you track your savings with ease. Also you can have part of your check go into your savings account automatically every time you get paid so that you don’t spend the money ahead of time.

Interest Rates

These are the little tiny numbers you find in the fine print of any credit card or credit application that is a proportion of the loan that is charged to the borrower. Basically this number is how much you will get charged monthly or annually for borrowing from that specific lender. Sometimes it can be low and sometimes it can be high but there are the few times where it can change over the course of only a couple of months.

Make sure that you are informed about your monthly or yearly interest rate obligations because those are the percentages that will really come back to get you as your debt adds up. These single or double digit percentages is what makes reducing debt so difficult because they are multiplied by the amount you owe every month or every year.

Be aware of every interest rate for every single credit card or line or line of credit so that you don’t end up with a ridiculously high interest rate and end up paying more back in interest than actual money you borrowed.

Fine Print

Remember that lovely saying, “reading is fundamental?” Well in this case it is. Reading all of the terms and conditions of every single credit card you own or consider applying for is vital for staying or minimizing your debt.

These small paragraphs contain all the truths behind credit cards and how they actually work financially. They will let you know the interest rate if you miss a payment, how long the interest rate you have will last, minimum payments and other important information for opening a line of credit with that lender.

Make sure you fully understand and read this section before signing your name on the dotted line. Because once you sign you are officially under those rules and responsible for knowing all of those facts.