4th Part

Managing Debt and Credit

Debt isn't always bad, but it needs to be managed wisely. When you take out a loan or use a credit card, you are essentially borrowing money that you promise to pay back later.

Key Concepts:

Understanding Good vs. Bad Debt:

Good Debt can help you build wealth, like a mortgage for a home or a student loan for an education that increases your earning potential.

Bad Debt is for things that lose value quickly, like credit card debt from buying consumer goods, and it often comes with very high-interest rates.

Building Credit: A good credit score is essential for things like renting an apartment, getting a loan, or even getting a job. You build a good score by paying your bills on time, keeping your credit card balances low, and not taking on too much debt.

The Dangers of High-Interest Debt: Credit card debt can be particularly dangerous due to its high-interest rates. It can trap you in a cycle of minimum payments where the interest keeps piling up, making it difficult to pay off the principal amount.