Borrowing 101

by | May 20, 2024 | Loan Education

May 20, 2024

Before you apply for a loan, you might have a few questions. We will do our best to answer some of those questions, but you are welcome to call or visit in person to talk to a loan officer and explore options for your unique situation. We are personal and never use virtual loan officers. Get to know our team.

What’s the difference between Credit and Debt?

  • Credit is the amount of money that is available for you to borrow. 
  • Debt is money you’ve already borrowed but haven’t yet paid back. 
  • Your credit is your ability to acquire debt. Your credit limit is how much debt you have access to. So, if you have a credit limit of $500 on a credit card, your available credit is $500. If you use the card to make a $50 purchase, you’re adding $50 in debt, and you have $450 in credit left until you hit your limit.

What is good debt vs bad debt?
All debt needs to be managed responsibly. Knowing what’s good and bad for your situation and how to handle your debt is key. 

All debt is not bad. Debt can be helpful. An affordable car loan, for example, can give you a reliable ride to your job so you can make money. That’s good.

Debt also helps build wealth, improves your credit score (which helps save money on other things like car insurance), and helps you navigate a temporarily bad situation without having to uproot your entire life.
You just need to make sure the amount of debt you accumulate, relative to your income, is well-managed and payments are made on time.

What is good debt?
Good debt helps you reach your financial goals. You just need to make sure the amount of debt you have, compared to your income, is managed and make all your payments on time. 

What is bad debt?
Loans and credit cards can offer new opportunities and financial flexibility, but they come with risks. Any loan that you’re unable to repay on time can quickly turn into bad debt, which may accumulate and threaten your financial health and future.

Managing your debt is the key. That means borrowing only an amount that you can comfortably pay off over time with your current income.

However, life can throw curveballs and create a sudden change to your income or employment situation. Bad debt is debt you can’t afford to pay back and sometimes you might find yourself in a struggle to get back on top of your principal payments. It’s in these times, it’s important to talk to your lender. Talk to your loan officer soon and often. It can be uncomfortable, but if you keep lines of communication open, your lender has an opportunity to work with you, not against you, on solutions to help you navigate through a bad debt situation.

Are Payday Loans bad debt?
Yes. Though they offer quick cash, they come with exorbitant interest rates. Plus, you’re expected to pay back what you owe by your next payday. Even if you’re responsible and pay on time, these loans typically don’t get reported to the major credit bureaus. So, your punctuality isn’t rewarded. If you need a short-term loan, contact one of our Loan Officers to talk about alternatives.

(509) 838-8960
6103 N Astor St.
Spokane, WA 99208