These days most people live more off credit than cash. While financing purchases through credit or loans can be a good way to improve your credit score, many people go about this the wrong way. To avoid credit debt problems, there are a few simple rules to follow when it comes to financing purchases:
Consider the source — It is important that you consider who you are looking to borrow money from before agreeing to participate in a financing agreement. Retail stores and service providers, like elective surgeons, often carry high interest rates and steep fees for default. Further, many of the financing contracts offered when financing purchases from these providers could contain an acknowledgement that you agree to waive your right to mediation if you default. The bottom line is that you should always read the fine print and look for financing institutions that carry minimal terms and conditions.
Consider cash — If you are looking to buy an item or service that you could afford in cash, why would you need to use credit? A smart money manager would say that using credit to purchase an item or service in lieu of cash would be to boost credit, because they would take the cash on hand and apply it towards repaying the debt quickly. This is smart credit use. However, this isn’t to say that you should not ever rely on cash. Making purchases that you can afford in cash can save you money down the road in interest fees