3 Tips On Dealing With Credit

Let’s be honest being an adult has its own wake up calls especially when we start receiving bills. I know old people have given us advice that worked for them, however things are different now and we need different approaches.

The working-class millennials are finding themselves in more debt than ever and it’s a conversation no one wants to talk about because it’s either embarrassing or not Instagram appropriate. Trust me, going to university does not teach you how to handle money neither does employment.

Instead accomplishing all these things puts most people under pressure as suddenly, they have study loans to repay, rent, cars, clothes, cellphone contracts, Netflix subscriptions, gym membership,  going out and etc. Let’s face it life is expensive and to cope with these pressures credit was introduced.

Credit is instant money that allows people the ability to buy now and pay later. Some say it is the biggest oppressor of our time and the fact that people are encouraged to get into debt for a better credit score is appalling. It is a solution for our impulsiveness and irrationality hence its prominence. However, credit is amazing when used right and for profitable reasons.

The rule is to only consume things on credit if they will have better returns, i.e. only use credit on things that are investments. The word investment is relative hence you need to assess your life first before making such decisions. However, I personally would not advice anyone to take credit (unless it’s an emergency), but if you are in debt here are three tips to help you…

  1. Let’s say you want to purchase a new laptop for business purposes and you only have a portion of its price, you then apply for a store credit. When credit is approved they will normally let you know how much you are expected to pay and the time period. The best thing to do is to reduce the repayment period by doubling or tripling the repayment amount. This will reduce the interest you could have paid and get you out of debt quicker.

    Financial Institutions do not want you to pay off credit earlier as their objective is to make more profit by having you pay the full effective interest rate. Effective interest rate is the compounded costs of borrowing money for periods longer than one year; hence you’d want to pay your credit within a year or less since its only charged on a flat rate.

  2. Credit cards require discipline as you need to pay off the full balance each month or else you’ll find yourself paying large amounts of interest charges over your lifetime, because the smaller your monthly payments the more debt gets rolled forward. This compounding effect will result in large losses of your hard earned cash.

  3. When you’ve bought on credit, do not acquire more credit but rather pay off the one you have. If you already have more than one credit debt, it is advisable to create a debt position list. This will help you account all your creditors by listing the principal debt, monthly payment, interest rate, remaining payment, total outstanding and even the end date. Listing your debt is therapeutic; it will make you aware of what you owe and drive you to eliminate it, that way regaining control.

The saddening aspect of credit is the lost opportunity cost of saving and creating passive income. Regularly paying interest charges means letting banks and companies use your money to fulfill their goals, leaving you financially dependent on them for life. Habitual borrowing will take away every spare penny you earn, so learn to protect your earnings to eventually make it work for you.

Reference

Danziger, N.P. (2019):  Fashion Forecast: How To Dress The Fashion Business For Success In 2019. Forbes.

Available from: https://www.forbes.com/sites/pamdanziger/2019/01/02/fashion-forecast-how-to-dress-the-fashion-business-for-success-in-2019/#d68406243d8d

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