Paying Debts Early : Good or Bad

If you have extra money, it’s always a question for people whether to use this money in paying off your debts or rather investing somewhere. Would paying off the debt early affect our credit score? Would it help us go ahead with our finances? Check these points before deciding on where to use your extra money.

Dangerous debts: 
Some debts are very dangerous for your financial health as they can result in jail time or monetary penalties. Such debts should be prioritized and paid off first. Examples of such debts are delinquent taxes, debts given to collection agencies etc.

Check the terms of the debt:
Check and see if there are penalties for paying off a loan early. Some creditors put a fee for the early repayment of the debt. Go back to your paperwork and check your fine print for prepayment fees.

Enough Cash:
After you strike through the dangerous debts checkpoint, next is the cash on hand. You want to have enough savings to cope during a financial crisis. Having cash militia helps you to go through a rough financial patch without having to rely on more debt.

Invest:
Do the maths! If you are earning more from the after cutting taxes rate of the investment than what is piling up due to the debt interest rate, then it is better to go for the investment. Paying off a debt early may not give you a benefit- that is why you are better off using your extra money for investing. In fact, use the money earned on the investment to pay off your debt in future. 

Act smart! Visit: www.cibilconsultants.com

Source: Secondary

For youngsters: A guide to build Credit score

While learning the basics of money management should begin in high school (or earlier,possible), the four to six years AFTER they graduate from high school is the most important time financially.  This is the time young adults become savers or spenders.High schoolers have many opportunities to begin learning how to manage money.  They likely will have part-time jobs, and, therefore, the money to begin to spend and save.  Many teens also have vehicles and need to pay for gas and insurance.If they begin saving now, they’ll have the advantage over their peers in a few years when they have the cash to put a down payment on a house.  If they invest in a retirement fund, thanks to compound interest, they’ll likely be in a much better position than their peers 40 or 50 years down the road.

Besides learning to save, learning to manage credit is equally important.  If a young person isn’t responsible with credit, he’ll set up the cycle of being in debt and having less income to use for other goals and expenses.
Often, getting credit is difficult in the beginning, but it doesn’t have to be.  Here are some ways a recent high school student can begin to build credit:

1.  Piggyback on someone else’s credit.  If you’re financially responsible, your parents may consider adding you as a user on their credit card.  There are several caveats here.

Consider your parents’ credit record.  Make sure that your parents have good (or great) credit as their credit score can be passed on to you within a matter of months of being an authorized user.  This is great news if their credit score is 780, but horrible news if their credit score is 580.
No credit is better than assuming low credit.

Consider how old the credit card is.  You’ll also want to strategically choose which credit card to be added to.  The best choice is a credit card that has been opened for several years and has a low balance.  You’ll want to make sure that your parents have always paid it on time.
Make sure the credit card company reports to credit bureaus.  Lastly, make sure that the credit card you’ve chosen reports authorized users to the credit bureaus.  If it doesn’t, being an authorized user won’t help you at all because the three credit bureaus won’t know you’re authorized on the card and you still won’t have a credit score.

Be responsible.  If you’re added as an authorized user, you should respect your parents’ trust in you.  Be responsible with the privilege they’ve given you.  If you overcharge, they’ll have to pay.

2.  Open a secured credit card.  Another option is to open a secured credit card.  (Make sure to ask the company if they regularly report customers to the credit bureaus.)   With this type of credit card, you pay a small deposit, so the credit card company has collateral if you don’t make timely payments.  Your credit limit is usually about the amount of your deposit.

Once the card is opened, be sure to make a few purchases a month and to ALWAYS pay on time.  Try to keep the balance low.

After six to twelve months of paying regularly, the credit card company may turn your account into a regular credit account.  If they don’t, check your credit score.  You may have a good enough credit score at this time to open a credit card account with a different company.
Once you become an authorized user or open a secured credit card, you simply need to pay the bill on time and control your spending.  Within six months to a year, you should be able to open a regular credit card account and begin your credit history.

Source: Secondary