Tag Archives: credit score

Seven Debt Warning Signs

7 Debt Warning SignsCNNMoney reports “Americans have a debt problem.”

Yeah, well, we could have told you that.

Every third person in America  owes so much in payments, that their account is considered “in collections.”

The good news is the debt might only be $25. The bad news is the average amount owed is just over $5,000, with some debts as high as $125,000. The super duper bad news is delinquent debt can put your credit score in the toilet…for years…even if you’ve paid off the debt. And a wrecked credit score can hurt many things from employment opportunities to securing loans.

While it may seem that your debt crept up on you, there are warning signs…here are just seven of them:

  1. You hide bills from others.
  2. You use a credit card for most purchases, and only pay the minimal balance.
  3. You have little or no savings.
  4. You believe that checking account overdrafts are a normal part of everyone’s financial life.
  5. You don’t know what your living expenses are because you have never tracked your spending.
  6. The loss of a job in the household would cause an immediate financial crisis.
  7. You borrow money from payday loan offices, pawnshops, or title loan companies.

More debt warning signs included in the Money Possible workbook. (pdf, page 13)

Need help getting your debt under control? Consider a credit union, where some offer financial education programs and have financial counselors on staff, or contact your local non-profit credit counseling agency like Kansas Consumer Credit Counseling Service.

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The Good (Debt), The Bad (Debt) and The Ugly

Good debt vs. bad debtWe’ve been saying that “debt” is a four-letter word.

We’ve been preaching about paying down your debt. We’ve been scolding you for being IN debt. And we’ve been teaching our students they don’t WANT debt.

We lied. Only SOME debt is bad.

Like an episode from Ripley’s Believe It or Not, some debt actually helps your credit score.

But first, the 15 second rundown: What’s a credit score/credit report?

  • A credit report includes your credit score and states when and where you applied for credit, who you borrowed money from, and who you owe money to.
  • Creditors and employers use credit reports to evaluate your applications for credit, insurance and employment.
  • Good credit is essential for things like qualifying for a loan.
  • Bad credit can hinder your ability to borrow money.

(There’s more about credit reports on page 20 of the Money Possible workbook.)

Got it? On to our favorite four-letter word.

Bad debt.
Equifax said it best: Bad debt funds a lifestyle you can’t afford.

In other words, live within in your means. (Fredica has learned to do this…Go Fredica!)

Bad debt is using a high interest credit card and failing to pay it off IN FULL each month. Bad debt is owning store credit cards because you just can’t help yourself in Pottery Barn or Restoration Hardware. Bad debt is falling behind in your payments.

Good debt.
Good debt is investments that create value for you, like school loans and mortgages. Your home’s value will probably increase over time, and your education will likely land you a better job.

(Think your Pottery Barn apothecary cabinet “creates value” for you? It doesn’t, and you need to read “Needs vs. Wants.”)

Since most people can’t pay for hefty tuitions or buy a house with cash, they borrow money, and make monthly payments to pay off the loan. Good debt is debt you pay back ON TIME each month.

One thing to remember: Good debt comes after you have enough cushion in your savings.

The ugly: How does good debt and bad debt affect your credit report?
Your borrowing history, including the type of debt and pay back history, is listed in your credit report and impacts your credit score. In fact, 35 percent of your score is based on your payment history alone.

What does this mean?

  • Pay your bills on time and borrow wisely. Period.
  • Missing just one payment or paying late can turn your credit score ugly real fast.
  • Don’t add a bunch of new debt before paying down old debt. That’s making a mountain out of a molehill.
  • Be responsible and show creditors “I got this” by applying for credit only when necessary.

Long story short…not all debt can get you into trouble. Think about why you have debt and use your borrowing power wisely. And just like everything else…it takes time to improve your credit if it’s bad, but it’s doable. Budgeting, saving and living within your means are the keys to a great credit score.

Millennials Carrying Less Debt, But Have Trouble Paying Bills

Although Millennials have fewer credit cards than older generations, and a lower credit card balance than the national average, they are struggling to pay bills.

According to this Wall Street Journal article, here is a breakdown of number of credit cards (on average) by generation:

  • Millennials: (ages 19 to 29): 1.5 credit cards
  • Gen X (ages 30 to 46): 2 credit cards
  • Baby Boomers (ages 47-65): 2.7 cards of Baby Boomers

Millennials: also carry less less debt:

  • Millennials: $2,700
  • National average: $4,500
  • Gen X and Baby Boomers (ages 30-65) $5,300

According to the article, Millennials appear to struggle with paying their bills (and it doesn’t matter if it’s credit cards, auto loans, or student loans). Millennials also have “the worst credit habits.”

Read more:
Wall Street Journal: Millennials Wary of Borrowing, Struggle With Debt Management