Credit and Debt

As you may have learned, credit can be a positive component of your spending and saving plan, providing convenience and allowing you to avoid having to carry large amounts of cash to pay for your purchases. You can also use credit, which allows you to borrow money you agree to pay back within a certain timeframe, to help build your credit history or to pay for things you may not otherwise be able to pay for in full at the time. The tradeoff is that you have to use credit wisely. If you don't pay back what you owe on time and in full, you can end up paying a lot more for something than it originally cost. At worst, it could lead you into debt.

While you must make borrowing decisions carefully, it's helpful to know that not all debt is bad debt. Credit can help you achieve important financial goals more quickly. For instance, you may need to take a student loan to pay for education expenses, a mortgage to be able to afford a home or a car loan to pay for a car you need to drive to and from work. Saving all the money you need for any of these goals can be unrealistic.

Keys for successfully using credit are to budget for the payments on the credit you use, make sure you don't owe more than you can afford to pay back and be sure to keep your borrowing costs to a minimum.

The more you understand about how credit works, the better you'll be able to make credit work for you. The two most common types of credit are credit cards and loans.