High school may educate students on how to bake a cake or how to solve trigonometry problems but one thing it usually neglects is the basics of financial management. Many analysts believe that one of the key reasons that people are falling into debt is a lack of debt management education in schools. Very few schools touch upon educational issues at all and the few that do rarely extend past balancing a checkbook. The intricacies of mortgages, automobile loans and credit cards are very rarely addressed.
Never Get Into Debt… Except Good Debt
There are three main types of debt that are considered good: mortgages, student loans and automobile loans. Mortgages are considered good debt because homes usually appreciate in value enough to cover the amount of the mortgage interest and allow a person to build net worth. Student loans are considered good debt because they are an investment in the student’s future income. Automobiles are good debt only when they are necessary for the income of a person and when the automobile is priced appropriate to the person’s budget. All of these items are good debt and usually increase a student’s credit score. Credit lines such as credit cards, personal loans and store cards are not good debt. It is always bad for someone to carry this type of debt. Credit cards should be paid off monthly, not a little at a time.
Balance Your Monthly Budget
Everyone should have a detailed monthly budget. There are many free online tools for the balancing of a monthly budget today but most people can simply use a spreadsheet or a paper and pen. Expenses should be tracked
thoroughly throughout the month and they should be added up and subtracted from income. If the expenses come out positive then it’s time to start saving the excess money. If the expenses come out negative then something will have to be done to either increase income or reduce expenses. A lack of monthly planning is the downfall of most households.
Understand Your Credit Score
score is one of the most important things that a person has and yet very few people actually understand what it means. A credit score is comprised of the duration of a person’s open accounts, their current balances, their late payments, the types of accounts that they have, credit inquiries and any negative items listed on their accounts such as collections. Understanding a credit score is one of the best ways to improve it. Students should acquire a credit card as soon as possible so that they have a lengthy credit history but they should make sure to pay it off every month. They should also acquire student loans and automobile loans and pay these back in regular installments. For those who are dedicated to their credit history it can even be beneficial to take out loans but immediately pay them back because this will show repayment of a significant loan. Credit reports can be checked annually for free.