Responsible Debt Habits

Debt often feels like the enemy, but not all debt is bad. By borrowing responsibly, you can use debt to enhance your life. Taking out a loan to cover the cost of a graduate degree increases your marketability and earning potential. Not bad. Borrowing to purchase a house or a car will likely increase your net worth by adding an asset to your portfolio. Not bad. It’s up to you to decide if borrowing is in your best interest.

Should you get a credit card?

Though there may be many pressures to get a credit card, it’s important to assess if it’s a responsible financial decision for you. Consider the following questions when deciding.

If you answer yes to all of these questions, you could probably handle a credit card at this point in your life. Consider whether getting a card is beneficial for your financial goals and if you can handle the extra responsibility.

Are you organized?

Think about how you keep track of your educational and extracurricular obligations. Do you know when your assignments are due, or do deadlines catch you off guard?

Consider those habits as a benchmark for your finances. Do you trust yourself to keep track of how much you've borrowed, how much you owe, and when your bill is due?

Are you responsible?

Knowing when your assignments are due is only half the battle. Do you typically meet deadlines?

Do you trust yourself to pay your bill when it’s due?

Do you make thoughtful spending decisions?

If you set financial goals regularly and track your progress toward those goals, you can probably manage a credit card. 

Do you understand how credit card interest and fees work?

Using a credit card is not the same as using a debit card. If you carry a balance over a few bill cycles, you will end up paying more than the sticker price for the items you purchased.

Tips for Borrowing Responsibly

Often the amount you need is far less than the maximum you’re allowed to borrow. Only borrow the amount that you need in order to minimize the long-term cost.

Shop around and find the loan or credit card that will cost you the least amount in the long-run (if that's what is important to you). Be aware of your credit score, because that will change the interest rates you are eligible to receive.

It is crucial to be aware of how much you’ve borrowed and the agreement you’ve reached with your lender(s). Do not enter borrowing agreements without a full understanding of the long-term implications. Future you will be grateful.

Failing to hold up your end of the agreement can result in unfavorable consequences, like lowering your credit score, which then affects many other aspects of your life. It can take many years of good credit behavior to correct these effects, so keep track of when your payments are due and do your best to pay at least the minimum owed.

If for some reason you cannot make your payments on time, talk to your lender in advance. They will explain the alternatives available to you.