Fullständig transkription av EP 08: Using Credit Responsibly

00:02:38.090 You know, they know that I'm not going to let you just go out and go crazy 00:02:39.680 --> 00:02:42.259 With, with my, with my credit card. 00:02:42.710 --> 00:02:43.430 So close. 00:02:44.310 --> 00:02:45.860 No, no, you never, never close. 00:02:49.520 --> 00:03:02.020 So another way is if, if your parents don't agree to get on their credit card is to sign up for secure credit card. 00:03:03.189 --> 00:03:15.460 And like I said, secure credit is one where you put up some collateral and a secure credit card is, Hey, I want a$2,000 line of credit or a thousand dollar credit line of credit. 00:03:15.729 --> 00:03:16.870 Well, guess what? 00:03:16.871 --> 00:03:27.400 To start that out, you put up a thousand dollars and then you charge against that thousand dollars and you pay you payback, you know, 00:03:27.780 --> 00:03:29.099 Hey, that's not even credit at all. 00:03:29.100 --> 00:03:32.099 It's just spending your money over time and give them your money. 00:03:32.210 --> 00:03:33.120 Absolutely. 00:03:33.210 --> 00:03:34.289 And, and so 00:03:36.659 --> 00:03:46.379 Technically it is credit, but you can do the same thing yourself without even using credit by, you know, before you go out and buy something, save the money ahead of time. 00:03:47.129 --> 00:03:47.129 Yeah. 00:03:48.090 --> 00:03:51.629 But the thing is, that'll, that'll get you a credit score and saving the money ahead of time. 00:03:52.439 --> 00:03:53.669 That's exactly right. 00:03:53.670 --> 00:04:01.800 And that's why you do, that's why, so you're essentially building a credit history with these, with these 00:04:02.250 --> 00:04:04.289 Copper own money, with your own money. 00:04:04.800 --> 00:04:12.810 And then, you know, in, in six months to a year, if you've done it well, they'll say, Hey, we want you to have one of our regular credit cards. 00:04:12.840 --> 00:04:16.889 And that usually leads to an unsecured credit card with a larger 00:04:16.889 --> 00:04:17.220 Limit. 00:04:18.000 --> 00:04:18.360 Okay. 00:04:18.899 --> 00:04:19.199 Now 00:04:19.199 --> 00:04:22.949 You get into the, nitty-gritty pay your bills every month. 00:04:24.089 --> 00:04:24.089 Yeah. 00:04:24.560 --> 00:04:29.730 That that's a basic pay your bills on time, pay him in full. 00:04:30.509 --> 00:04:35.670 And that's probably the best habit that you can get into is paying 00:04:35.670 --> 00:04:37.649 Early, give you extra points or whatever 00:04:38.790 --> 00:04:39.519 It 00:04:40.199 --> 00:04:41.189 Can. 00:04:41.759 --> 00:04:41.759 Yeah. 00:04:41.790 --> 00:04:42.750 Let me just leave it at that. 00:04:42.750 --> 00:04:45.810 It can't, there are situations where it can be helpful. 00:04:46.829 --> 00:04:52.949 Um, you know, when push comes to shove and you just say, Hey, look, you know, I paid those bills. 00:04:53.129 --> 00:05:00.509 Not, not when they were due, but as soon as I got them and I did it for 15 years, so you guys should give me more credit, right? 00:05:01.230 --> 00:05:01.230 Yeah. 00:05:01.259 --> 00:05:02.639 Things of that, things of that nature. 00:05:03.480 --> 00:05:15.240 And then, so once you've done those, those things, now you go, and you heard me say before that the credit card companies will be looking for you to upgrade your card. 00:05:16.139 --> 00:05:23.100 And you know, some people will have to do it, you know, Hey, credit card company, I want to upgrade to a secure credit card. 00:05:23.100 --> 00:05:28.079 Well, credit card companies are, are, are they're paying attention. 00:05:28.470 --> 00:05:33.750 They'll probably make you the offer beforehand before you, you asked them they want your money. 00:05:33.810 --> 00:05:34.170 Right. 00:05:35.019 --> 00:05:35.139 All right. 00:05:35.490 --> 00:05:47.970 And then keep your credit card utilization, low deterioration to your credit score happens when your usage hits 30% or more 30%, 30% or more, and you don't pay it back. 00:05:49.410 --> 00:05:59.480 So if you, if you, you know, you started percent of your credit limit and you pay it all back, they, you know, they don't care or actually that's good. 00:05:59.870 --> 00:06:00.110 Yeah. 00:06:00.379 --> 00:06:13.040 But if you, you know, um, spend a lot on your credit card and then, you know, only pay back half or, you know, and the, and the usage gets back to about 30%. 00:06:13.069 --> 00:06:15.250 You'll see some hits in your car credit score. 00:06:15.850 --> 00:06:16.300 I see. 00:06:16.779 --> 00:06:16.779 Okay. 00:06:17.709 --> 00:06:21.430 Don't open too many credit, uh, accounts at once. 00:06:21.430 --> 00:06:23.019 We talked about this a little bit earlier. 00:06:24.370 --> 00:06:32.889 Um, and again, don't just pay your credit card bills on time, pay all your bills on time. 00:06:33.910 --> 00:06:44.589 You know, there, you know, there are instances where utility bills can, you know, uh, you know, they feed all of these creditors, feed your credit history and credit reports. 00:06:44.860 --> 00:06:45.250 Got it. 00:06:45.339 --> 00:06:55.600 So, you know, this is stuff that everybody's paying attention to, uh, pay particular attention to avoiding student loan default. 00:06:56.259 --> 00:06:56.620 Okay. 00:06:56.620 --> 00:06:57.850 What is defaulting on 00:06:57.850 --> 00:06:58.360 A loan? 00:06:58.569 --> 00:06:59.500 Let's go into that 00:07:00.910 --> 00:07:02.230 In essence, not paying. 00:07:02.649 --> 00:07:03.069 Okay. 00:07:04.389 --> 00:07:06.100 Just a fancy word for not being alone. 00:07:06.129 --> 00:07:06.339 Yeah. 00:07:06.459 --> 00:07:15.970 Essentially you have a loan agreement that says you are going to pay X amount each month for X number of years. 00:07:17.290 --> 00:07:34.750 Once you, you know, if you don't pay it once you're late, once that late lateness gets above a certain time period, usually 90 days, uh, you are in a, what is called a technical default. 00:07:35.949 --> 00:07:39.850 You have failed to comply with the terms of the case.

00:07:42.490 --> 00:07:44.230 That's what that's essentially what it fall. 00:07:44.800 --> 00:07:45.189 Got it. 00:07:45.220 --> 00:07:45.579 Okay. 00:07:46.199 --> 00:07:52.000 I specifically talk about not defaulting on student loans because they will follow you through bankruptcy. 00:07:52.300 --> 00:07:52.660 Right. 00:07:53.230 --> 00:07:55.660 But I'm take making a broader approach. 00:07:55.959 --> 00:07:57.399 You don't want to fall too on anything. 00:07:58.060 --> 00:07:58.060 Yep. 00:07:58.449 --> 00:08:02.019 Again, you want to be on time with all your bills. 00:08:02.949 --> 00:08:15.579 And so your ability to manage credit is really a demonstration of your ability to master your budgeting and stay on top of all your okay. 00:08:16.089 --> 00:08:16.600 I see. 00:08:16.720 --> 00:08:17.170 I see. 00:08:18.100 --> 00:08:18.100 Okay. 00:08:18.459 --> 00:08:24.759 Now, if you're having problems with your student loans, you try a couple of things. 00:08:24.879 --> 00:08:27.040 You'll look to go for the, from it. 00:08:27.569 --> 00:08:30.850 No, we're just say, Hey, Hey, loan company, I can't pay you to write them a letter. 00:08:31.509 --> 00:08:35.350 Can, can you, uh, can you, can I stop paying this for now? 00:08:35.470 --> 00:08:37.269 Like, there's something that's come up for me. 00:08:38.440 --> 00:08:41.590 Uh, can I freeze this loan? 00:08:41.620 --> 00:08:45.580 And you know, you can, you can still accrue interest, which is what they typically do. 00:08:46.539 --> 00:08:47.799 Um, and 00:08:47.830 --> 00:08:52.629 You know, I'll pay you back in, I'll start paying you back and X, you know, X amount of time. 00:08:52.990 --> 00:08:53.320 Yeah. 00:08:53.321 --> 00:08:53.860 That makes sense. 00:08:54.039 --> 00:08:57.960 Cause student loans follow, like people be paying student loans for 00:08:58.639 --> 00:09:00.049 Forever, forever. 00:09:00.620 --> 00:09:03.799 And, and there's other things that you can go through. 00:09:03.801 --> 00:09:07.610 You can look for switch to income driven repayment plans. 00:09:08.149 --> 00:09:10.730 So, Hey, look, you know, I don't make as much money. 00:09:11.600 --> 00:09:15.529 Can you, can we restructure the payment based on my income. 00:09:16.070 --> 00:09:23.090 And then, you know, uh, given, uh, one of the things that happened over the last two, two years, they're looking for a loan forgiveness. 00:09:24.409 --> 00:09:28.070 And so, so people are campaigning on the student loan forgiveness. 00:09:28.250 --> 00:09:32.570 Now there's, there's some tax implications for that, but you know, that's a, that's another area. 00:09:33.289 --> 00:09:33.649 Yeah. 00:09:33.659 --> 00:09:35.450 I said, that's a whole other episode. 00:09:35.750 --> 00:09:36.289 All right. 00:09:36.730 --> 00:09:36.730 And 00:09:36.799 --> 00:09:41.600 Now if you have private student loans, you may not have all these options. 00:09:42.529 --> 00:09:43.049 Uh, but 00:09:43.340 --> 00:09:46.730 Student loans being like,

what, what does that, so 00:09:47.210 --> 00:09:57.169 Are there are, um, uh, uh, federal guaranteed loans as essentially a yes. 00:09:57.409 --> 00:09:57.710 Okay. 00:09:57.860 --> 00:10:12.049 And, um, you know, those things have some protections for the, uh, for, for the borrower or some, some rights for the borrower that they can go do the private student loans, like, like straight from your bank. 00:10:12.080 --> 00:10:18.230 That's not, that's not associated with, um, with that FASFA. 00:10:19.009 --> 00:10:22.429 Um, they don't have those same protections. 00:10:22.820 --> 00:10:27.019 And so you want to go ahead and try to renegotiate them. 00:10:27.080 --> 00:10:31.549 Those, you try to get a refinance them at lower interest rates. 00:10:32.450 --> 00:10:50.600 Um, and if there, if you're struggling with that, you may have to get a co-signer and you know, the, the challenge with that in getting somebody to co-sign is that if you default on the new agreement, it not only hurts your credit, it hurts your costs. 00:10:51.350 --> 00:10:52.279 Oh. 00:10:52.280 --> 00:10:54.049 So this is like an accountability issue. 00:10:54.830 --> 00:10:55.190 Yeah. 00:10:55.549 --> 00:10:55.549 Okay. 00:10:56.450 --> 00:10:56.700 Okay. 00:10:57.039 --> 00:10:57.320 Got it. 00:10:57.919 --> 00:11:08.629 And then, you know, you're going to want to, so let, let's move off into other, um, credit management techniques. 00:11:09.169 --> 00:11:16.519 You want to keep the credit accounts open, unless they're costing you for credit cards and things of that nature. 00:11:17.029 --> 00:11:18.379 There can be too many. 00:11:18.889 --> 00:11:19.220 Yeah. 00:11:19.820 --> 00:11:21.950 That makes you, you can have too many. 00:11:24.230 --> 00:11:24.590 Right. 00:11:25.879 --> 00:11:38.389 Um, but you want to be careful which ones you close cause the one, you know, if you've got, uh, you know, don't close the ones with the longest history, because that helps your credit score. 00:11:39.080 --> 00:11:51.409 Now, if that one with the longest credit, uh, longest history has like terrible rates or costs a high annual fee, then you might want to, you might want to get rid of that one. 00:11:51.860 --> 00:11:52.129 Yeah. 00:11:52.610 --> 00:11:52.940 Okay. 00:11:53.769 --> 00:12:00.909 But you know, you've got to, uh, you've got to be mindful of closing, you know, closing your accounts. 00:12:01.019 --> 00:12:19.360 And again, the closed end loans will close automatically the revolving credit you've got to be careful about because you know, not only when that, when you close that it reduces the amount of loan capacity or credit capacity you have. 00:12:19.659 --> 00:12:24.279 And so your debt, your, your utilization rate could go up automatically. 00:12:24.759 --> 00:12:25.600 Oh, I see. 00:12:26.259 --> 00:12:26.259 Okay. 00:12:26.710 --> 00:12:30.340 Because you've, you know, you had a credit card with a$10,000 limit, you took it out. 00:12:30.970 --> 00:12:34.529 And so now you have, and now you, Betsy, you could 00:12:34.529 --> 00:12:36.929 Be using 30% or more already. 00:12:37.289 --> 00:12:37.289 Yep. 00:12:37.320 --> 00:12:37.710 Okay. 00:12:37.980 --> 00:12:37.980 Yep. 00:12:38.009 --> 00:12:38.309 Yeah. 00:12:39.090 --> 00:12:48.659 Now, uh, responsible credit users use some additional tools to help them manage their debt, get your credit report annually. 00:12:49.830 --> 00:12:50.639 Remember what I said? 00:12:50.640 --> 00:12:52.590 The credit report is essentially your history. 00:12:53.549 --> 00:12:57.149 You want to check it, you know, make sure that, you know, there's no errors on there. 00:12:57.389 --> 00:13:02.519 And if there are errors, there's there's tools out there to help you go and get those errors. 00:13:02.520 --> 00:13:02.850 Correct. 00:13:03.330 --> 00:13:03.720 Right. 00:13:04.080 --> 00:13:08.669 Because they are obligated to fix them to represent you. 00:13:08.671 --> 00:13:08.879 Correct. 00:13:09.149 --> 00:13:09.389 Right. 00:13:09.509 --> 00:13:12.840 And you want to dispute any errors or fraudulent accounts. 00:13:13.980 --> 00:13:19.080 And then if you can go ahead and apply for free credit scores. 00:13:19.559 --> 00:13:28.320 So remember the credit score is a representation of your credit history, compose compile it to one number. 00:13:29.220 --> 00:13:31.860 And so you want to see, you know, see what that number is. 00:13:32.970 --> 00:13:33.269 Yeah. 00:13:33.270 --> 00:13:33.690 There's all these 00:13:33.690 --> 00:13:36.590 Websites and stuff now where you can see your credit score for free. 00:13:37.019 --> 00:13:37.679 Absolutely. 00:13:38.399 --> 00:13:38.940 Absolutely. 00:13:39.330 --> 00:13:42.210 Now, you know, you want to check is great. 00:13:42.211 --> 00:13:43.919 You want to check, you want to check your score. 00:13:43.921 --> 00:13:44.309 It's great. 00:13:44.311 --> 00:13:45.299 Don't obsess. 00:13:47.070 --> 00:13:49.500 If you see errors, you need to make changes. 00:13:49.950 --> 00:14:01.200 But you know, if your score is seven 40 instead of seven 80, uh, don't obsess over the, you know, look, look at what, look at your situation to see if she can rationalize it. 00:14:01.980 --> 00:14:11.129 Don't make decisions just for optimizing your credit score and, and get yourself into, into, into bad financial situations. 00:14:11.610 --> 00:14:18.240 So some of the lessons use revolving credit, but don't let it turn into debt, right? 00:14:18.330 --> 00:14:22.559 Pay your, you know, try to pay off your bills as quickly as you can. 00:14:22.561 --> 00:14:34.889 If you can pay off the balance every month, pay on time, not just your credit bills, all your bills, and don't take new loans unless you need them. 00:14:35.460 --> 00:14:35.879 Okay. 00:14:36.480 --> 00:14:36.870 All right. 00:14:37.529 --> 00:14:44.759 So how do you, we've dutched on a little bit of this, but how do you responsibly use credit specifically credit cards? 00:14:46.320 -->

00:14:53.870 So many financial advisors emphasize that, you know, making only the minimum payment on your credit cards is not enough. 00:14:54.529 --> 00:15:03.769 So you, you know, you'll get a credit card statement, oh, you charged$2,000 this past month, but you only have to pay back$15. 00:15:05.899 --> 00:15:06.350 Okay. 00:15:06.350 --> 00:15:17.409 If you pay back$15, that means, you know, this month you're going to owe the 19, 1985, plus whatever interest 00:15:17.919 --> 00:15:20.289 And plus the stuff that you charged next month, right? 00:15:20.440 --> 00:15:21.100 So 00:15:21.190 --> 00:15:25.600 How do credit card companies make money off your interest, your interests. 00:15:25.809 --> 00:15:31.419 So, you know, they're happy, you know, they may be happy for you to, you know, give them some interest. 00:15:33.129 --> 00:15:45.190 Um, now they're not happy if you never pay them back, but they're happy to, for you to pay them, pay them much, but not, but only paying the minimum is not in your best interest. 00:15:45.669 --> 00:15:45.970 Right. 00:15:46.269 --> 00:15:59.110 And so if you're not able to pay the full balance that in, in some financial advisor's mind is an early indication that you're already spending money on your lemon beyond your means. 00:15:59.379 --> 00:15:59.679 Yeah. 00:16:00.159 --> 00:16:07.450 Credit cards should be used for convenience, not to make ends meet they're handy because they eliminate the need to carry cash. 00:16:08.049 --> 00:16:08.049 Yeah. 00:16:08.289 --> 00:16:20.440 And they generate reward points where you, you know, and they're helpful in, in emergencies and they can help you spread out big ticket items, you know, um, over a short period of time. 00:16:21.460 --> 00:16:32.139 But after emergencies, you're spending, should your S your rest of your spending should be changed to allow you to get your back balanced back to zero as quickly as you can. 00:16:32.860 --> 00:16:32.860 Yeah. 00:16:33.340 --> 00:16:33.610 Yeah. 00:16:34.509 --> 00:16:37.840 But data thought that the advantage 00:16:37.840 --> 00:16:51.039 Of credit and credit cards was that you could afford more expensive items like in now, like you could get more expensive items that you would normally have to save for, like now, why shouldn't I just purchase all those big, expensive items that I have. 00:16:52.330 --> 00:16:53.740 You make a great point. 00:16:54.070 --> 00:16:58.450 They do allow you to absorb the cost of big ticket items over several months. 00:16:59.200 --> 00:17:01.419 However, this is something you have to watch out for. 00:17:02.710 --> 00:17:04.480 You got to consider the full cost. 00:17:05.440 --> 00:17:13.369 If you're using the credit card to buy anything, the true cross is what you, what you paid for. 00:17:13.750 --> 00:17:18.250 Plus all the interest that spread out over time. 00:17:18.490 --> 00:17:39.910 So something that may have been on sale, if you let it stay on your credit card for, you know, a year, you've paid a lot more than what the, the sticker price that bargain may end up costing you a great deal more than you expect, especially if you let that linger on your, on your credit card. 00:17:41.500 --> 00:17:59.309 And so that's how people get into trouble with debt, because one month it may be, oh, yeah, I'm just going to spread this, this payment out over a couple of months, and then you have an emergency, and then you've got to get something else. 00:17:59.640 --> 00:18:04.980 And so now you've got a lot of credit cards, so be mindful of that. 00:18:07.170 --> 00:18:07.529 All right. 00:18:07.559 --> 00:18:08.549 That's our show. 00:18:08.789 --> 00:18:16.079 Thank you so much for listening and be sure to join us again next time when we would discuss the benefits of financial literacy. 00:18:16.759 --> 00:18:17.210 Yes. 00:18:17.211 --> 00:18:25.849 And if you have any questions for us, you can email us at E F E S podcasts, gmail.com and follow our Instagram at EFS podcast. 00:18:25.910 --> 00:18:27.049 Thanks so much for listening. 00:18:27.559 --> 00:18:28.369 Take care, everybody.