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Credit Card Debt Can Be a Good Thing

To an extent, that is. Debt is an important part of personal finance. If done correctly, you can leverage debt to your advantage.

For example, there is no way to obtain a credit card interest rate that is affordable until you first establish a credit history. You can establish a credit history for yourself by taking on a small amount of debt and then paying it off. If you have been hesitant to borrow money in the past, creditors will be less likely to grant you loans when you need them.

The following are additional ways debt can be beneficial to your credit:

  • Credit scores are partially determined by your debt-to-credit ratio. By maintaining a small level of debt in comparison to all of your available credit, your credit score will improve and you’ll be able to drop your credit card APR.
  • If your credit score is not as high as you’d like, you can also take out a small personal loan and then immediately pay it back. Paying back loans on time shows creditors that you are trustworthy.
  • Another factor that determines your credit score is the type of debt you carry. The more varied your debt, the higher your rating. For example, carrying a credit card balance, owing car payments and paying back student loans are all ways to add to the types of debt you have. The most important thing to remember, however, is never default on payments or loans, otherwise your debt will be detrimental instead.