Boosting Your Financial Health in 2017: Part four
Tips for managing your credit and debt.
The previous articles in this series identified the importance of tracking spending, understanding money values and creating a spending plan. This article will provide tips on how to manage credit and debt.
Understand the type of credit you have. Credit can be issued in a variety of ways, for example:
- Installment loan – These loans have been approved for a specific amount, and must be repaid within a certain time frame by paying a fixed amount each month. Examples of installment loans include personal loans, student loans, auto loans and mortgages.
- Revolving Credit – This allows you to borrow up to a certain amount, called an approved credit limit. The balance revolves as payments and new purchases are made. The most common form of revolving credit is a credit card.
- Service Credit – This type of credit allows you to use a service before paying. Your bill will arrive monthly or quarterly and you are charged for the amount of service that you used. Examples of service credit include utility and medicals bills.
Establish or improve your credit. There are a variety of ways to accomplish this:
- Pay all of your bills on time! Credit history makes up the largest portion of your credit score.
- Open, use and balance a checking account on a regular basis, to show that you can manage money responsibly.
(Tip: Read and understand the terms of any product that you pursue from a financial institution, including any potential fees).
- Open a savings account (remember the importance of an emergency fund).
- If you have steady income, consider getting a limited-use credit card, or a credit card with a low approved limit as a way to build/improve your overall credit. If you are not eligible for an un-secured credit card (most common type of credit card which does not require any collateral), consider a secured credit card (requires collateral) from a financial institution.
- Review your credit report every year. You are entitled to one free report from each credit bureau (Equifax, Experian and Trans Union) every year.
- Review the following fact sheets for additional information: Debit vs. Credit… Are they the same? and To your Credit! – Take Action to Improve Your Credit Report and Score.
For additional money management resources visit Michigan State University Extension. Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, please visit either the MSU Extension events page or MI Money Health website. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.