The benefits – and risks – of credit

Learn the credit risk and benefit zones.

Having the ability to borrow money when you need it gives you flexibility. But borrowing too much money and being unable to pay it back is a serious problem in our country. In fact, the fastest growing group declaring bankruptcy is age twenty to twenty-four. It’s important to use credit responsibly and avoid having too much debt. If you understand how credit works and use it wisely, it can help you to reach your goals.

Credit benefit zone

The benefits of having credit are:

  • The option of buying something today and paying the money back over time, rather than having to wait
  • The flexibility to act on major purchases and life opportunities that may require more money than you have on hand right now, like buying a computer, or borrowing for college
  • Easier to rent an apartment and to get service from local utility companies
  • Easier to buy what you want, when you want it

Credit risk zone

The risks of having credit are:

  • Overdoing it; borrowing more than you can afford to repay
  • If you don’t make your payments on time, you’ll damage your credit record
  • Losing money on late fees
  • Having to pay additional interest
  • Difficulty getting loans or credit in the future

 
How much debt can you repay?

General guideline #1:
Never borrow more than 20% of your yearly net income.

General guideline #2:
Keep your credit card debt low enough so that your required payments are no more than 10% of your monthly income.

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