Credit and loans

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Credit and loan products, such as lines of credit and personal loans, are ways that you can borrow money to pay for goods and services. Responsible borrowing can help you build a good credit history, but using credit to spend beyond your means is dangerous. Before getting a credit or loan product, look at whether you can fit repaying the money into your budget.

 

Good debt and bad debt

“Good debt” is sometimes used to describe types of borrowing that can help improve your overall financial health over time. For example, a student loan to help pay for education can pay off by helping you get a job with a higher income.

On the other hand, borrowing to buy things that you consume or that have only short-term value is generally considered “bad debt.” For example, going into debt for a vacation means that you will be paying for this long after you have enjoyed the short-term benefits.

Things to consider:

  • Before borrowing, make sure regular payments to repay your debt fit within your budget.
  • Shop around to find the best deal for you.
  • Read the terms and conditions of your agreement, including interest rates and fees, to know what you are getting into. If you don’t understand, ask the lender questions.
  • Pay more than the minimum payment whenever you can. Even a small increase in payments can make a big difference in the amount of interest you pay and how long it takes to pay off the money you borrowed.

If your financial institution offers you insurance or another optional service when you sign up for credit, you do not have to take it. Lenders must get your consent before signing you up for services such as these and cannot automatically add them to your loan, credit card, or line of credit. Learn more about negative option billing and your rights.

All about credit and loans

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