Money Matters Newsletter
Volume 7, Issue 3 - November 2021

Plan for every wave that comes your way

New Year, New Habits
We're hoping you've decided to start off this year strong with solid financial goals! This past December, the CAP Financial Services Team hosted the first Healthy Debt Webinar. They discussed the definition of debt, key terms, and a brief introduction to credit cards and loans. Here is an overview of items discussed:

What is Debt?

Debt is simply, money you owe. Debt is usually associated with credit cards and loans. You borrow money from a lender, and you make payments to pay the lender back. Debt is not always negative! When it is mismanaged it can have a impact on the financial resources available for you by negatively affecting your credit score.

What is a Credit Score?

Your credit score tells a lender your credit worthiness of paying back a loan. Credit cards are one way to build your credit score but can also be a way to accumulate debt. There are many factors that influence your credit score, including how long you have had a line of credit (e.g. a credit card account), and your balance on your accounts. When you get a credit card you want to make sure that you only spend what you can pay off at the end of the billing cycle. If you are unable to pay the full balance at the end of the billing cycle, then you will be charged interest.  

How will having a Credit Card affect my Budget?

When you view credit cards you want to see it as borrowing money from a lender. At the end of the month if you cannot pay off your balance you will want to look at your budget. Where did you overspend? Again, your budget is a tool to help you manage the money. Let's say you spent more then you budgeted for on social activities. You will want to sit down with your budget and plan on how you will pay off your full credit card debt. You will need to sit down with your budget and plan how much you will put towards your credit card debt to pay it off. This will need to include budgeting for any interest charges you accrue in the time it takes you to pay off your balance.

How much of my Credit Card Balance should I use?

It is best practice to use no more than 30% of your available balance to ensure you can continue managing your monthly payment. For example, let's say you have a credit card with a limit of $1,000 and your current balance is $500. Even though you are making the minimum payments on time, the balance does influence your credit score. You are currently using 50% of your credit line, but having a balance higher than 30% of your available limit can negatively impact your credit score. Also, staying below the 30% debt is more manageable to pay off then having 50% of your credit used.
As you can see, credit cards are a financial tool to help you gain access to more resources by building a high credit score, but if mismanaged it can also limit your resources by reducing your credit score. 

Be sure to check your emails and join any future Financial Webinars!