With so many people stuck financially, it’s time for us to understand debt more. By understanding we’ll better prepare ourselves for the future. Here, I’ll share tactics on how to handle it and understand two common debts: credit cards, and student debt.
The financial world is a seemingly tricky place for a lot of people. It can be a source of anxiety or an actual source of wealth depending on how you use it and see it. For the vast majority of people, they are losing in it. They are swamped with debt and overall lack the confidence to be able to move themselves or get out.
This sort of problem isn’t anything new.
Ever since the creation of credit cards, people have gone deeper and deeper into debt. Today, it’s actually “normal” for the average people to be in debt.
To give you a sense of how far we’ve fallen, we’re going to go back in time a bit. In the 1960s and 70s, they used to have something called “mortgage parties”. It’s where a family paid off their entire house mortgage and celebrated. From what I was told of these ancient rituals, they actually burned the mortgage papers.
Now, that’s a thing in the past. I bet you never heard of those until just now. If you have, well I guess that dates you. Not that that is a bad thing. You were lucky to witness that event.
Anyway the most important thing now is how can we get rid of the crushing debt that we’ve been saddled with?
Well, the big factor I believe is financial illiteracy in the finance industry. As you’ll find out, most people know nothing or little about the finance industry. What little they know may not even be all that useful today too.
This is where I come in. It is my hope that this article will provide understanding and to build confidence for those who are struggling. But for this post I’ll be focusing specifically on debt. Two kind of debts to be exact: credit card debt, and student debt.
Why Should You Understand Debt
Aside from the fact that those two debts are by far one of the most common debts people have, not many people really know how to handle it.
US News did a recent survey of 1,256 students nationwide who own a credit card and asked about their habits. Their findings on all of this was both enlightening but also terrifying. They started with a question:
What financial topics, if any, did your parents or educators teach you about before you got your credit card?
44.2% of people reported that they were told nothing about budgeting, reading financial statements, how to use a credit card, and more! For those who think that number is small, those numbers are strong statistical numbers representing the general American population. Still not convinced? Think back to your financial education that your parents have given you. If you were given any, how would you assess the quality of it?
This is important as that dictates a lot of things with regards to money. From how you see money, but also how you use it and understand it. But the most important thing is how you understand debt and use it. A lot of people see debt as a bad thing because they’re stuck in it. But debt isn’t all that bad when you understand it and use it constructively.
To overcome, build confidence and understand debt in the financial world is to do your homework on it. Like I just said, debt, when understood, can be a powerful tool. So let’s tackle these two debts.
Firstly there are a few kinds of loans for students. In the US, there’s private student loans and from there there’s a few sub-categories that behave differently. Having an understanding of those loans and how they work can be to your benefit.
Generally these loans are a slight boost to cover costs outside of the typical federal student loan. For dependent undergraduate students they could receive up to $5,500 and up to $20,500 for graduate or professional students.
These can be used to your distinct advantage, especially when you know how to budget and stick to it. You can begin using that money to invest in stocks or index funds. From there you can put the proceeds into a savings account that you can use to pay off your debts. That or perhaps start a business and put a little bit of money towards some equipment while looking for cheap alternatives. There’s many things you can do for free now. It’s insane.
Furthermore what can also be helpful for students after graduation is consolidating loans. It’s a technique where you compile multiple loans and place it into one big one. That way you are making only one payment and that’s it. But again, you want to do more research as it might be more of a curse for you than a blessing.
How consolidating loans can help is not only will you have to worry about only one payment, it’s a peace of mind. You don’t need to break several cheques or worry about having to pay large sums to various places. Again, being in debt isn’t the happiest place for people and if you can make it easier on yourself, go for it.
Credit cards were created in 1950, and since then people have become more and more reliant on credit cards. This day and age you hardly see anyone paying with cash or opening up a coin purse to pay for goods and services.
The same can be said of peoples ability to understand debt from credit cards. The older credit cards get, the more people don’t understand how to use them properly.
You can always go back to paying with physical cash, but it’s still important to learn about credit cards. Particularly how to use them properly. Of course there’s financial jargon, but as a consumer, it’s important. But what’s more pressing is how you use credit cards. After all, it’s fair to say that the parents of those students who said nothing about credit cards, probably don’t know much either. That can be disastrous.
Getting A Credit Card
Like I said above, it’s important for people to at least get a credit card. If you understand debt, credit cards can be used effectively. Firstly a credit card builds your credit score. This is important as people now are requesting credit checks whenever you apply for a mortgage, a business loan, a job, or even an apartment. So you want to be building up good credit for that.
A good tactic to use for a credit card is to use it like a debit card. You have a max limit per day, but you also can’t spend extra money you don’t have with debit cards either. This tactic can ensure you use your credit card within your financial means and don’t go overboard.
Also depending on the card that you are going for, you may get some additional benefits. From accumulating points for particular stores faster, to getting travel insurance, there’s some benefits to being a cardholder. At the bottom of this linked article, there’s a run down of student credit cards.
The last tactic with credit cards I want to share is make sure you pay your balances as quickly as possible. Ideally the day you make your purchases. Many credit card companies have sites where you can pay your balance immediately. Furthermore, some cards are linked to banks. This makes moving money across accounts simple.
Your Financial Future Is Up To You
The financial world can be a tricky place, but a lot of that comes down to the fact that people don’t understand debt. I don’t blame them. We’re at a point now where we gloss over the Terms & Conditions of every document.
It’s no surprise we’re glossing over financial jargon, official contracts from banks and lenders, and so many other things. I get that it’s a “boring subject”. But this “boring subject” can ruin your life if you’re not careful. So you have to understand debt and how to use it.
But there is hope, the financial world is understandable. When you take the time to do research, you can understand it. So I encourage you to continue to read articles and books on the topic. To build your confidence in the financial world is to essentially do research.
I’m not saying you need to devote hundreds of hours to it, but having a general understanding of how things work can pay off in dividends further down the road.
To your growth!
Eric S Burdon