August Blog Series: Debt and Credit

Debt is a very easy hole to fall down, but unfortunately, it plays a large role in your financial life. Not only does it create added stress and pressure on your spending abilities, but your debt impacts about 30% of your credit score.

In our previous August blog series about credit, we focused on what goes into a credit score and dove into a little bit more detail about that. One thing I mentioned was debt, because it plays a large role in the determination of your credit score.

Debt is a very easy hole to fall down, but unfortunately, it plays a large role in your financial life. Not only does it create added stress and pressure on your spending abilities, but your debt impacts about 30% of your credit score. That is a large piece of your credit score that is based solely on the amount, longevity, and risk of the debt you owe.

There are several different ways you may have debt. You can have debt from your credit card, from medical charges, and from taking out loans. Debt is a very broad term that covers a lot of different ways you may owe money to someone, so you might have debt in ways that aren’t discussed in this blog. If you’d like help managing your debt, be sure to reach out to Mary Rigg’s Financial Counseling services.

It is very easy to fall into credit card debt — it’s almost meant to be a trap! We discussed the basics in one of our previous blogs, where we covered how easy it is to purchase something thinking you will have extra money in the future, but you may not be able to pay back in full. Every month, you should receive a monthly statement from your credit card company that tells you how much you’ve spent on your credit card. Then they give you a due date for the payment, usually there’s a grace period of 21 days after the statement is posted, to when your payment is due. Not paying off your entire monthly statement leads to credit card debt. If you don’t pay off your entire monthly statement by the time it’s due (you can pay it before the day it’s due too), then it becomes debt, and you are charged a late fee and interest on what you owe.

This is how credit card debt is a trap, if you can’t pay it off in one month, you will probably struggle to pay off the amount next month, especially with the added interest and late fees. Unfortunately, that’s how credit cards work. They are extremely important when building credit, which we will discuss more in the next blog, but it is also very easy to fall into credit card debt.

Medical debt is also a very common struggle here in the United States. Ashley Piland, who works at Purdue Extension – Marion County, has compiled 7 tips to help you manage your medical debt: don’t ignore your bills, verify the charges on each bill, pay it off, consolidate the smaller bills, negotiate a Payment Arrangement or smaller pay off amount, apply for Medicaid or other government health plans, and request Financial Hardship Forgiveness. This infographic expands on each of these 7 tips.

Lastly, loans can also hurt your credit. Loans can be great for building credit. However, if you are struggling to manage them, if you struggle to make payments on time and in full, then they are hurting your credit score. Loan consolidation as discussed in a previous blog can be helpful, and there is Financial Hardships Assistance. Speak with a credit counselor or a coach at Mary Rigg Neighborhood Center to learn more.

As always, please feel free to reach out to Mary Rigg Neighborhood Center for more help; connect with someone on our Family and Financial Resource team by calling 317-639-6106.