May 25, 2021 • 18 mins
Hello! and welcome to Everyday Finance and Economics with the Siglers! The podcast where we discuss what you need to know about personal finance and economics and give you practical advice on how to get started and be smart with your money.
This episode is all about how to use your credit responsibly, and make it work well for you! Glenn and Christina discuss different ways to use your credit, building good credit history, and more! Join us next week for a new discussion on financial literacy.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:07):
Hello, and welcome to everyday finance and economics
with the Sigler's the podcastwhere we discuss what you need
to know about personal financeand economics, and give you
practical advice on how to getstarted and be smart with your
money.
We're your hosts, Glenn andChristina Sigler.
Speaker 2 (00:24):
So Christina, what's going on today?
Speaker 1 (00:27):
What matters this week is Bitcoin.
Bitcoin has had a reallyvolatile month.
It's been worth almost 60,000 usdollars and had a recent load
this weekend of$31,000, whichmeans a huge difference in what
your money's worth, depending onwhen you checked your
investments.
This weekend volatility has beencaused by Tesla's founder, Elon
Musk, who has been a hugeproponent of cryptocurrencies.
(00:49):
He recently decided not toaccept Bitcoin anymore as
payment for Teslas electric carsand criticize Bitcoin for its
huge energy consumption and itsmining practices.
Also volatility has been causedby both the U S and Chinese
governments, which have hintedat a regulation crack down on
the cryptocurrency market.
Now, Bitcoin is our economicterm of the week and Bitcoin is
(01:11):
a decentralized digitalcurrency.
Meaning there is no government,no central bank or administrator
backing it up and it can be sentuser to user on the Bitcoin
network without the need forintermediaries.
All right, guys, let's finishout our series on credit.
Okay.
How do you, how do you buildgood credit history and a good
(01:32):
credit?
Speaker 2 (01:34):
Well, again, a lot of this is common sense, but we'll
start with the bait pace, right.
You know, for the youngerlisteners, uh, you can become a
good way to start is to becomean authorized user on one of
your parent's credit cards.
And that's, if your parents aregood, responsible credit users
with good credit scores, you'reessentially piggy-backing off of
(01:57):
their credit history.
Speaker 1 (02:00):
So how, how does that work?
Speaker 2 (02:03):
Um, so it for you, if I put you on my credit card, you
would over the next year or two,um, gain some of the benefit of
my credit history.
Speaker 1 (02:17):
Oh, great.
So do I get to spend your money?
Speaker 2 (02:20):
Well, you do, but guess who's looking so you, so,
so know.
So the credit card companies,aren't, they're not stupid.
They know you're going to haveadult supervision.
Speaker 3 (02:32):
Yeah.
So,
Speaker 2 (02:33):
You know, they know that I'm not going to let you
just go out and go crazy
Speaker 3 (02:39):
With, with my, with my credit card.
So close.
No, no, you never, never close.
Speaker 2 (02:49):
So another way is if, if your parents don't agree to
get on their credit card is tosign up for secure credit card.
And like I said, secure creditis one where you put up some
collateral and a secure creditcard is, Hey, I want a$2,000
(03:12):
line of credit or a thousanddollar credit line of credit.
Well, guess what?
To start that out, you put up athousand dollars and then you
charge against that thousanddollars and you pay you payback,
you know,
Speaker 1 (03:27):
Hey, that's not even credit at all.
It's just spending your moneyover time and give them your
money.
Absolutely.
And, and so
Speaker 2 (03:36):
Technically it is credit, but you can do the same
thing yourself without evenusing credit by, you know,
before you go out and buysomething, save the money ahead
of time.
Yeah.
Speaker 1 (03:48):
But the thing is, that'll, that'll get you a
credit score and saving themoney ahead of time.
Speaker 2 (03:52):
That's exactly right.
And that's why you do, that'swhy, so you're essentially
building a credit history withthese, with these
Speaker 4 (04:02):
Copper own money, with your own money.
Speaker 2 (04:04):
And then, you know, in, in six months to a year, if
you've done it well, they'llsay, Hey, we want you to have
one of our regular credit cards.
And that usually leads to anunsecured credit card with a
larger
Speaker 3 (04:16):
Limit.
Okay.
Now
Speaker 2 (04:19):
You get into the, nitty-gritty pay your bills
every month.
Yeah.
That that's a basic pay yourbills on time, pay him in full.
And that's probably the besthabit that you can get into is
paying
Speaker 1 (04:35):
Early, give you extra points or whatever
Speaker 3 (04:38):
It
Speaker 2 (04:40):
Can.
Yeah.
Let me just leave it at that.
It can't, there are situationswhere it can be helpful.
Um, you know, when push comes toshove and you just say, Hey,
look, you know, I paid thosebills.
Not, not when they were due, butas soon as I got them and I did
it for 15 years, so you guysshould give me more credit,
right?
(05:01):
Yeah.
Things of that, things of thatnature.
And then, so once you've donethose, those things, now you go,
and you heard me say before thatthe credit card companies will
be looking for you to upgradeyour card.
And you know, some people willhave to do it, you know, Hey,
credit card company, I want toupgrade to a secure credit card.
(05:23):
Well, credit card companies are,are, are they're paying
attention.
They'll probably make you theoffer beforehand before you, you
asked them they want your money.
Right.
All right.
And then keep your credit cardutilization, low deterioration
to your credit score happenswhen your usage hits 30% or more
(05:44):
30%, 30% or more, and you don'tpay it back.
So if you, if you, you know, youstarted percent of your credit
limit and you pay it all back,they, you know, they don't care
or actually that's good.
Yeah.
But if you, you know, um, spenda lot on your credit card and
(06:06):
then, you know, only pay backhalf or, you know, and the, and
the usage gets back to about30%.
You'll see some hits in your carcredit score.
I see.
Okay.
Don't open too many credit, uh,accounts at once.
We talked about this a littlebit earlier.
Um, and again, don't just payyour credit card bills on time,
(06:31):
pay all your bills on time.
You know, there, you know, thereare instances where utility
bills can, you know, uh, youknow, they feed all of these
creditors, feed your credithistory and credit reports.
Got it.
So, you know, this is stuff thateverybody's paying attention to,
(06:51):
uh, pay particular attention toavoiding student loan default.
Okay.
What is defaulting on
Speaker 3 (06:57):
A loan?
Let's go into that
Speaker 2 (07:00):
In essence, not paying.
Speaker 3 (07:02):
Okay.
Just a fancy word for not beingalone.
Speaker 2 (07:06):
Yeah.
Essentially you have a loanagreement that says you are
going to pay X amount each monthfor X number of years.
Once you, you know, if you don'tpay it once you're late, once
that late lateness gets above acertain time period, usually 90
(07:29):
days, uh, you are in a, what iscalled a technical default.
You have failed to comply withthe terms of the case.
That's what that's essentiallywhat it fall.
Got it.
Okay.
I specifically talk about notdefaulting on student loans
because they will follow youthrough bankruptcy.
(07:52):
Right.
But I'm take making a broaderapproach.
You don't want to fall too onanything.
Yep.
Again, you want to be on timewith all your bills.
And so your ability to managecredit is really a demonstration
of your ability to master yourbudgeting and stay on top of all
(08:13):
your okay.
I see.
I see.
Okay.
Now, if you're having problemswith your student loans, you try
a couple of things.
You'll look to go for the, fromit.
No, we're just say, Hey, Hey,loan company, I can't pay you to
write them a letter.
Can, can you, uh, can you, can Istop paying this for now?
(08:35):
Like, there's something that'scome up for me.
Uh, can I freeze this loan?
And you know, you can, you canstill accrue interest, which is
what they typically do.
Speaker 4 (08:46):
Um, and
Speaker 2 (08:47):
You know, I'll pay you back in, I'll start paying
you back and X, you know, Xamount of time.
Speaker 1 (08:52):
Yeah.
That makes sense.
Cause student loans follow, likepeople be paying student loans
for
Speaker 2 (08:58):
Forever, forever.
And, and there's other thingsthat you can go through.
You can look for switch toincome driven repayment plans.
So, Hey, look, you know, I don'tmake as much money.
Can you, can we restructure thepayment based on my income.
And then, you know, uh, given,uh, one of the things that
(09:19):
happened over the last two, twoyears, they're looking for a
loan forgiveness.
Speaker 4 (09:24):
And so, so people are campaigning on the student loan
forgiveness.
Speaker 2 (09:28):
Now there's, there's some tax implications for that,
but you know, that's a, that'sanother area.
Speaker 4 (09:33):
Yeah.
I said, that's a whole otherepisode.
All right.
And
Speaker 2 (09:36):
Now if you have private student loans, you may
not have all these options.
Uh, but
Speaker 1 (09:43):
Student loans being like, what, what does that, so
Speaker 2 (09:47):
Are there are, um, uh , uh, federal guaranteed loans
as essentially a yes.
Okay.
And, um, you know, those thingshave some protections for the,
uh, for, for the borrower orsome, some rights for the
borrower that they can go do theprivate student loans, like,
(10:10):
like straight from your bank.
That's not, that's notassociated with, um, with that
FASFA.
Um, they don't have those sameprotections.
And so you want to go ahead andtry to renegotiate them.
Those, you try to get arefinance them at lower interest
(10:31):
rates.
Um, and if there, if you'restruggling with that, you may
have to get a co-signer and youknow, the, the challenge with
that in getting somebody toco-sign is that if you default
on the new agreement, it notonly hurts your credit, it hurts
your costs.
(10:51):
Oh.
So this is like anaccountability issue.
Yeah.
Okay.
Okay.
Got it.
And then, you know, you're goingto want to, so let, let's move
off into other, um, creditmanagement techniques.
You want to keep the creditaccounts open, unless they're
(11:12):
costing you for credit cards andthings of that nature.
There can be too many.
Yeah.
That makes you, you can have toomany.
Right.
Um, but you want to be carefulwhich ones you close cause the
one, you know, if you've got, uh, you know, don't close the ones
(11:33):
with the longest history,because that helps your credit
score.
Now, if that one with thelongest credit, uh, longest
history has like terrible ratesor costs a high annual fee, then
you might want to, you mightwant to get rid of that one.
Yeah.
Okay.
(11:53):
But you know, you've got to, uh,you've got to be mindful of
closing, you know, closing youraccounts.
And again, the closed end loanswill close automatically the
revolving credit you've got tobe careful about because you
know, not only when that, whenyou close that it reduces the
(12:14):
amount of loan capacity orcredit capacity you have.
And so your debt, your, yourutilization rate could go up
automatically.
Oh, I see.
Okay.
Because you've, you know, youhad a credit card with a$10,000
limit, you took it out.
And so now you have, and nowyou, Betsy, you could
Speaker 4 (12:34):
Be using 30% or more already.
Speaker 3 (12:37):
Yep.
Okay.
Yep.
Yeah.
Speaker 2 (12:39):
Now, uh, responsible credit users use some additional
tools to help them manage theirdebt, get your credit report
annually.
Remember what I said?
The credit report is essentiallyyour history.
You want to check it, you know,make sure that, you know,
there's no errors on there.
And if there are errors, there'sthere's tools out there to help
(13:00):
you go and get those errors.
Correct.
Right.
Speaker 1 (13:04):
Because they are obligated to fix them to
represent you.
Correct.
Speaker 2 (13:09):
Right.
And you want to dispute anyerrors or fraudulent accounts.
And then if you can go ahead andapply for free credit scores.
So remember the credit score isa representation of your credit
history, compose compile it toone number.
(13:29):
And so you want to see, youknow, see what that number is.
Yeah.
There's all these
Speaker 1 (13:33):
Websites and stuff now where you can see your
credit score for free.
Speaker 2 (13:37):
Absolutely.
Absolutely.
Now, you know, you want to checkis great.
You want to check, you want tocheck your score.
It's great.
Don't obsess.
If you see errors, you need tomake changes.
But you know, if your score isseven 40 instead of seven 80, uh
, don't obsess over the, youknow, look, look at what, look
(13:59):
at your situation to see if shecan rationalize it.
Don't make decisions just foroptimizing your credit score and
, and get yourself into, into,into bad financial situations.
So some of the lessons userevolving credit, but don't let
it turn into debt, right?
Pay your, you know, try to payoff your bills as quickly as you
(14:22):
can.
If you can pay off the balanceevery month, pay on time, not
just your credit bills, all yourbills, and don't take new loans
unless you need them.
Okay.
All right.
Speaker 1 (14:37):
So how do you, we've dutched on a little bit of this,
but how do you responsibly usecredit specifically credit
cards?
Speaker 2 (14:46):
So many financial advisors emphasize that, you
know, making only the minimumpayment on your credit cards is
not enough.
So you, you know, you'll get acredit card statement, oh, you
charged$2,000 this past month,but you only have to pay back
$15.
Okay.
(15:06):
If you pay back$15, that means,you know, this month you're
going to owe the 19, 1985, pluswhatever interest
Speaker 1 (15:17):
And plus the stuff that you charged next month,
right?
So
Speaker 2 (15:21):
How do credit card companies make money off your
interest, your interests.
So, you know, they're happy, youknow, they may be happy for you
to, you know, give them someinterest.
Um, now they're not happy if younever pay them back, but they're
happy to, for you to pay them,pay them much, but not, but only
(15:41):
paying the minimum is not inyour best interest.
Right.
And so if you're not able to paythe full balance that in, in
some financial advisor's mind isan early indication that you're
already spending money on yourlemon beyond your means.
Yeah.
Credit cards should be used forconvenience, not to make ends
(16:03):
meet they're handy because theyeliminate the need to carry
cash.
Yeah.
And they generate reward pointswhere you, you know, and they're
helpful in, in emergencies andthey can help you spread out big
ticket items, you know, um, overa short period of time.
But after emergencies, you'respending, should your S your
(16:25):
rest of your spending should bechanged to allow you to get your
back balanced back to zero asquickly as you can.
Yeah.
Yeah.
Speaker 3 (16:34):
But data thought that the advantage
Speaker 1 (16:37):
Of credit and credit cards was that you could afford
more expensive items like innow, like you could get more
expensive items that you wouldnormally have to save for, like
now, why shouldn't I justpurchase all those big,
expensive items that I have.
Speaker 2 (16:52):
You make a great point.
They do allow you to absorb thecost of big ticket items over
several months.
However, this is something youhave to watch out for.
You got to consider the fullcost.
If you're using the credit cardto buy anything, the true cross
is what you, what you paid for.
(17:13):
Plus all the interest thatspread out over time.
So something that may have beenon 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 pricethat bargain may end up costing
you a great deal more than youexpect, especially if you let
(17:38):
that linger on your, on yourcredit card.
And so that's how people getinto trouble with debt, because
one month it may be, oh, yeah,I'm just going to spread this,
this payment out over a coupleof months, and then you have an
emergency, and then you've gotto get something else.
(17:59):
And so now you've got a lot ofcredit cards, so be mindful of
that.
All right.
That's our show.
Thank you so much for listeningand be sure to join us again
next time when we would discussthe benefits of financial
literacy.
Speaker 1 (18:16):
Yes.
And if you have any questionsfor us, you can email us at E F
E S podcasts, gmail.com andfollow our Instagram at EFS
podcast.
Thanks so much for listening.
Take care, everybody.
Hello, and welcome to everyday finance and economics
with the Sigler's the podcastwhere we discuss what you need
to know about personal financeand economics, and give you
practical advice on how to getstarted and be smart with your
money.
We're your hosts, Glenn andChristina Sigler.
Speaker 2 (00:24):
So Christina, what's going on today?
Speaker 1 (00:27):
What matters this week is Bitcoin.
Bitcoin has had a reallyvolatile month.
It's been worth almost 60,000 usdollars and had a recent load
this weekend of$31,000, whichmeans a huge difference in what
your money's worth, depending onwhen you checked your
investments.
This weekend volatility has beencaused by Tesla's founder, Elon
Musk, who has been a hugeproponent of cryptocurrencies.
(00:49):
He recently decided not toaccept Bitcoin anymore as
payment for Teslas electric carsand criticize Bitcoin for its
huge energy consumption and itsmining practices.
Also volatility has been causedby both the U S and Chinese
governments, which have hintedat a regulation crack down on
the cryptocurrency market.
Now, Bitcoin is our economicterm of the week and Bitcoin is
(01:11):
a decentralized digitalcurrency.
Meaning there is no government,no central bank or administrator
backing it up and it can be sentuser to user on the Bitcoin
network without the need forintermediaries.
All right, guys, let's finishout our series on credit.
Okay.
How do you, how do you buildgood credit history and a good
(01:32):
credit?
Speaker 2 (01:34):
Well, again, a lot of this is common sense, but we'll
start with the bait pace, right.
You know, for the youngerlisteners, uh, you can become a
good way to start is to becomean authorized user on one of
your parent's credit cards.
And that's, if your parents aregood, responsible credit users
with good credit scores, you'reessentially piggy-backing off of
(01:57):
their credit history.
Speaker 1 (02:00):
So how, how does that work?
Speaker 2 (02:03):
Um, so it for you, if I put you on my credit card, you
would over the next year or two,um, gain some of the benefit of
my credit history.
Speaker 1 (02:17):
Oh, great.
So do I get to spend your money?
Speaker 2 (02:20):
Well, you do, but guess who's looking so you, so,
so know.
So the credit card companies,aren't, they're not stupid.
They know you're going to haveadult supervision.
Speaker 3 (02:32):
Yeah.
So,
Speaker 2 (02:33):
You know, they know that I'm not going to let you
just go out and go crazy
Speaker 3 (02:39):
With, with my, with my credit card.
So close.
No, no, you never, never close.
Speaker 2 (02:49):
So another way is if, if your parents don't agree to
get on their credit card is tosign up for secure credit card.
And like I said, secure creditis one where you put up some
collateral and a secure creditcard is, Hey, I want a$2,000
(03:12):
line of credit or a thousanddollar credit line of credit.
Well, guess what?
To start that out, you put up athousand dollars and then you
charge against that thousanddollars and you pay you payback,
you know,
Speaker 1 (03:27):
Hey, that's not even credit at all.
It's just spending your moneyover time and give them your
money.
Absolutely.
And, and so
Speaker 2 (03:36):
Technically it is credit, but you can do the same
thing yourself without evenusing credit by, you know,
before you go out and buysomething, save the money ahead
of time.
Yeah.
Speaker 1 (03:48):
But the thing is, that'll, that'll get you a
credit score and saving themoney ahead of time.
Speaker 2 (03:52):
That's exactly right.
And that's why you do, that'swhy, so you're essentially
building a credit history withthese, with these
Speaker 4 (04:02):
Copper own money, with your own money.
Speaker 2 (04:04):
And then, you know, in, in six months to a year, if
you've done it well, they'llsay, Hey, we want you to have
one of our regular credit cards.
And that usually leads to anunsecured credit card with a
larger
Speaker 3 (04:16):
Limit.
Okay.
Now
Speaker 2 (04:19):
You get into the, nitty-gritty pay your bills
every month.
Yeah.
That that's a basic pay yourbills on time, pay him in full.
And that's probably the besthabit that you can get into is
paying
Speaker 1 (04:35):
Early, give you extra points or whatever
Speaker 3 (04:38):
It
Speaker 2 (04:40):
Can.
Yeah.
Let me just leave it at that.
It can't, there are situationswhere it can be helpful.
Um, you know, when push comes toshove and you just say, Hey,
look, you know, I paid thosebills.
Not, not when they were due, butas soon as I got them and I did
it for 15 years, so you guysshould give me more credit,
right?
(05:01):
Yeah.
Things of that, things of thatnature.
And then, so once you've donethose, those things, now you go,
and you heard me say before thatthe credit card companies will
be looking for you to upgradeyour card.
And you know, some people willhave to do it, you know, Hey,
credit card company, I want toupgrade to a secure credit card.
(05:23):
Well, credit card companies are,are, are they're paying
attention.
They'll probably make you theoffer beforehand before you, you
asked them they want your money.
Right.
All right.
And then keep your credit cardutilization, low deterioration
to your credit score happenswhen your usage hits 30% or more
(05:44):
30%, 30% or more, and you don'tpay it back.
So if you, if you, you know, youstarted percent of your credit
limit and you pay it all back,they, you know, they don't care
or actually that's good.
Yeah.
But if you, you know, um, spenda lot on your credit card and
(06:06):
then, you know, only pay backhalf or, you know, and the, and
the usage gets back to about30%.
You'll see some hits in your carcredit score.
I see.
Okay.
Don't open too many credit, uh,accounts at once.
We talked about this a littlebit earlier.
Um, and again, don't just payyour credit card bills on time,
(06:31):
pay all your bills on time.
You know, there, you know, thereare instances where utility
bills can, you know, uh, youknow, they feed all of these
creditors, feed your credithistory and credit reports.
Got it.
So, you know, this is stuff thateverybody's paying attention to,
(06:51):
uh, pay particular attention toavoiding student loan default.
Okay.
What is defaulting on
Speaker 3 (06:57):
A loan?
Let's go into that
Speaker 2 (07:00):
In essence, not paying.
Speaker 3 (07:02):
Okay.
Just a fancy word for not beingalone.
Speaker 2 (07:06):
Yeah.
Essentially you have a loanagreement that says you are
going to pay X amount each monthfor X number of years.
Once you, you know, if you don'tpay it once you're late, once
that late lateness gets above acertain time period, usually 90
(07:29):
days, uh, you are in a, what iscalled a technical default.
You have failed to comply withthe terms of the case.
That's what that's essentiallywhat it fall.
Got it.
Okay.
I specifically talk about notdefaulting on student loans
because they will follow youthrough bankruptcy.
(07:52):
Right.
But I'm take making a broaderapproach.
You don't want to fall too onanything.
Yep.
Again, you want to be on timewith all your bills.
And so your ability to managecredit is really a demonstration
of your ability to master yourbudgeting and stay on top of all
(08:13):
your okay.
I see.
I see.
Okay.
Now, if you're having problemswith your student loans, you try
a couple of things.
You'll look to go for the, fromit.
No, we're just say, Hey, Hey,loan company, I can't pay you to
write them a letter.
Can, can you, uh, can you, can Istop paying this for now?
(08:35):
Like, there's something that'scome up for me.
Uh, can I freeze this loan?
And you know, you can, you canstill accrue interest, which is
what they typically do.
Speaker 4 (08:46):
Um, and
Speaker 2 (08:47):
You know, I'll pay you back in, I'll start paying
you back and X, you know, Xamount of time.
Speaker 1 (08:52):
Yeah.
That makes sense.
Cause student loans follow, likepeople be paying student loans
for
Speaker 2 (08:58):
Forever, forever.
And, and there's other thingsthat you can go through.
You can look for switch toincome driven repayment plans.
So, Hey, look, you know, I don'tmake as much money.
Can you, can we restructure thepayment based on my income.
And then, you know, uh, given,uh, one of the things that
(09:19):
happened over the last two, twoyears, they're looking for a
loan forgiveness.
Speaker 4 (09:24):
And so, so people are campaigning on the student loan
forgiveness.
Speaker 2 (09:28):
Now there's, there's some tax implications for that,
but you know, that's a, that'sanother area.
Speaker 4 (09:33):
Yeah.
I said, that's a whole otherepisode.
All right.
And
Speaker 2 (09:36):
Now if you have private student loans, you may
not have all these options.
Uh, but
Speaker 1 (09:43):
Student loans being like, what, what does that, so
Speaker 2 (09:47):
Are there are, um, uh , uh, federal guaranteed loans
as essentially a yes.
Okay.
And, um, you know, those thingshave some protections for the,
uh, for, for the borrower orsome, some rights for the
borrower that they can go do theprivate student loans, like,
(10:10):
like straight from your bank.
That's not, that's notassociated with, um, with that
FASFA.
Um, they don't have those sameprotections.
And so you want to go ahead andtry to renegotiate them.
Those, you try to get arefinance them at lower interest
(10:31):
rates.
Um, and if there, if you'restruggling with that, you may
have to get a co-signer and youknow, the, the challenge with
that in getting somebody toco-sign is that if you default
on the new agreement, it notonly hurts your credit, it hurts
your costs.
(10:51):
Oh.
So this is like anaccountability issue.
Yeah.
Okay.
Okay.
Got it.
And then, you know, you're goingto want to, so let, let's move
off into other, um, creditmanagement techniques.
You want to keep the creditaccounts open, unless they're
(11:12):
costing you for credit cards andthings of that nature.
There can be too many.
Yeah.
That makes you, you can have toomany.
Right.
Um, but you want to be carefulwhich ones you close cause the
one, you know, if you've got, uh, you know, don't close the ones
(11:33):
with the longest history,because that helps your credit
score.
Now, if that one with thelongest credit, uh, longest
history has like terrible ratesor costs a high annual fee, then
you might want to, you mightwant to get rid of that one.
Yeah.
Okay.
(11:53):
But you know, you've got to, uh,you've got to be mindful of
closing, you know, closing youraccounts.
And again, the closed end loanswill close automatically the
revolving credit you've got tobe careful about because you
know, not only when that, whenyou close that it reduces the
(12:14):
amount of loan capacity orcredit capacity you have.
And so your debt, your, yourutilization rate could go up
automatically.
Oh, I see.
Okay.
Because you've, you know, youhad a credit card with a$10,000
limit, you took it out.
And so now you have, and nowyou, Betsy, you could
Speaker 4 (12:34):
Be using 30% or more already.
Speaker 3 (12:37):
Yep.
Okay.
Yep.
Yeah.
Speaker 2 (12:39):
Now, uh, responsible credit users use some additional
tools to help them manage theirdebt, get your credit report
annually.
Remember what I said?
The credit report is essentiallyyour history.
You want to check it, you know,make sure that, you know,
there's no errors on there.
And if there are errors, there'sthere's tools out there to help
(13:00):
you go and get those errors.
Correct.
Right.
Speaker 1 (13:04):
Because they are obligated to fix them to
represent you.
Correct.
Speaker 2 (13:09):
Right.
And you want to dispute anyerrors or fraudulent accounts.
And then if you can go ahead andapply for free credit scores.
So remember the credit score isa representation of your credit
history, compose compile it toone number.
(13:29):
And so you want to see, youknow, see what that number is.
Yeah.
There's all these
Speaker 1 (13:33):
Websites and stuff now where you can see your
credit score for free.
Speaker 2 (13:37):
Absolutely.
Absolutely.
Now, you know, you want to checkis great.
You want to check, you want tocheck your score.
It's great.
Don't obsess.
If you see errors, you need tomake changes.
But you know, if your score isseven 40 instead of seven 80, uh
, don't obsess over the, youknow, look, look at what, look
(13:59):
at your situation to see if shecan rationalize it.
Don't make decisions just foroptimizing your credit score and
, and get yourself into, into,into bad financial situations.
So some of the lessons userevolving credit, but don't let
it turn into debt, right?
Pay your, you know, try to payoff your bills as quickly as you
(14:22):
can.
If you can pay off the balanceevery month, pay on time, not
just your credit bills, all yourbills, and don't take new loans
unless you need them.
Okay.
All right.
Speaker 1 (14:37):
So how do you, we've dutched on a little bit of this,
but how do you responsibly usecredit specifically credit
cards?
Speaker 2 (14:46):
So many financial advisors emphasize that, you
know, making only the minimumpayment on your credit cards is
not enough.
So you, you know, you'll get acredit card statement, oh, you
charged$2,000 this past month,but you only have to pay back
$15.
Okay.
(15:06):
If you pay back$15, that means,you know, this month you're
going to owe the 19, 1985, pluswhatever interest
Speaker 1 (15:17):
And plus the stuff that you charged next month,
right?
So
Speaker 2 (15:21):
How do credit card companies make money off your
interest, your interests.
So, you know, they're happy, youknow, they may be happy for you
to, you know, give them someinterest.
Um, now they're not happy if younever pay them back, but they're
happy to, for you to pay them,pay them much, but not, but only
(15:41):
paying the minimum is not inyour best interest.
Right.
And so if you're not able to paythe full balance that in, in
some financial advisor's mind isan early indication that you're
already spending money on yourlemon beyond your means.
Yeah.
Credit cards should be used forconvenience, not to make ends
(16:03):
meet they're handy because theyeliminate the need to carry
cash.
Yeah.
And they generate reward pointswhere you, you know, and they're
helpful in, in emergencies andthey can help you spread out big
ticket items, you know, um, overa short period of time.
But after emergencies, you'respending, should your S your
(16:25):
rest of your spending should bechanged to allow you to get your
back balanced back to zero asquickly as you can.
Yeah.
Yeah.
Speaker 3 (16:34):
But data thought that the advantage
Speaker 1 (16:37):
Of credit and credit cards was that you could afford
more expensive items like innow, like you could get more
expensive items that you wouldnormally have to save for, like
now, why shouldn't I justpurchase all those big,
expensive items that I have.
Speaker 2 (16:52):
You make a great point.
They do allow you to absorb thecost of big ticket items over
several months.
However, this is something youhave to watch out for.
You got to consider the fullcost.
If you're using the credit cardto buy anything, the true cross
is what you, what you paid for.
(17:13):
Plus all the interest thatspread out over time.
So something that may have beenon 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 pricethat bargain may end up costing
you a great deal more than youexpect, especially if you let
(17:38):
that linger on your, on yourcredit card.
And so that's how people getinto trouble with debt, because
one month it may be, oh, yeah,I'm just going to spread this,
this payment out over a coupleof months, and then you have an
emergency, and then you've gotto get something else.
(17:59):
And so now you've got a lot ofcredit cards, so be mindful of
that.
All right.
That's our show.
Thank you so much for listeningand be sure to join us again
next time when we would discussthe benefits of financial
literacy.
Speaker 1 (18:16):
Yes.
And if you have any questionsfor us, you can email us at E F
E S podcasts, gmail.com andfollow our Instagram at EFS
podcast.
Thanks so much for listening.
Take care, everybody.
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