It's never a good idea to accrue debt needlessly, but teens will learn as they get older that debt obligations are a part of life. Whether it's taking out a home loan or simply paying off monthly utility bills, being an adult means dealing with debt in some form or another.
However, while having debt isn't necessarily always a bad thing, how an individual handles that debt can be the difference between a spotless credit history and a lifetime of financial difficulty. As moms and dads are all too aware, how a person manages debt can impact everything from obtaining a car loan to getting a lease.
Use the following strategies to avoid common pitfalls when considering taking on and managing debt:
Don't rush in
The best way to avoid missing payments on debt obligations is not having to make payments in the first place. While some debt is a necessary part of being an American consumer, it's important to carefully weigh your options before taking on debt. For instance, while buying groceries or paying electricity bills are necessities, using a credit card to get a big screen TV that you can't otherwise afford is not a good idea.
Don't get gouged
Credit cards can help build credit ratings and history, but it's important to make sure you're not entering into an unfair relationship. Credit cards can feature exorbitant interest rates that kick in after a certain period of time, or ultra-strict terms that can make it very difficult to stay current on bills. Before opening a credit card, explore your options and research what suits you best – and make sure you read the fine print! One alternative to keep in mind is that credit cards from credit unions often feature lower interest rates and more lenient terms than those from other companies.
Don't just pay the minimum
When repaying debt, it can be tempting to only fork over enough money for the bare minimum. After all, who wants to spend more money on bills if they don't have to? However, when it comes to debt that accrues interest, paying the minimum will only lead to more costs down the line. By paying more than the minimum monthly payment, you can pay off debt faster and save a bunch of money on interest.
Don't forget your priorities
Certain debts are more urgent than others. For instance, if you are paying off two student loans.focus more on paying down the one with the higher interest rate (without neglecting the other one). This loan will cost more in the long run and will be more difficult to pay off. By prioritizing your debts, you can both take care of riskier financial obligations as well as save money.
Don't ignore a problem
If you find yourself overextended and are struggling to pay off your debts, the best course of action is to get help. Immediately. Contacting your lenders and creditors to discuss your problem is the first step. Many of these institutions will try to work with debtors in order to help them stay current. After all, lenders and creditors would rather negotiate repayment terms than have someone fail to make any payments at all.
The bottom line is that failing to manage your debts will only lead to financial damage and stress. Take on debts thoughtfully and stay on top of them. Considering all these strategies starting from a young age will help you stay financially healthy.