how to sweep and tap your future – The Stute

What could $887 billion get you? That could buy you the Denver Broncos about 180 times, the entire enterprise value of Tesla, or about 2,000 of the world’s finest superyachts if that floats your boat. While we may wish that $887 billion represents an exhilarating potential acquisition or new investment in the industry, it’s more like the total credit card debt of Americans in 2022.

While that number in itself may be surprising, consider the invisible cost of credit card debt: massive APR. For new credit cards, the average APR in the second quarter of 2022 was 15.13%. For reference, that’s about 5% more than Warren Buffet’s returns over the past 20 years. When you couple those high APRs with the long periods that Americans tend to carry that debt, trouble looms on the horizon.

The story doesn’t end with the sheer volume of debt, but rather the impact that debt has on many consumers through the effect on their credit ratings. This debt figure is one of, if not the most important, aspect of your credit score. In addition to exceeding your limit, you are running too close to your limit. The general rule is around 30% available, so if one were to have $5000 online available per month, then 1500 appearing on the statement date would be a safe amount.

So why do we care about credit scores? A credit score is among the most important numbers in life, along with your birthday, social security number, and now your phone password.

One of the most important aspects of credit is applying for a mortgage. A score difference can mean hundreds of thousands of dollars in extra money spent or saved. Another important way is applying for new lines of credit with a lower APR, higher cash back, or more perks (such as miles, etc.).

Finally and perhaps most important for every student reading this is student loan refinancing. When it comes time to pay off these loans, many choose to pay off their government or higher rate student loan with a lower rate personal loan if they are deemed eligible. The credit score one has strongly affects the rates offered, which ultimately dictates how much savings one is (potentially) able to take advantage of.

So how can I repair my credit? First, avoid damaging it in the first place. It goes without saying, but one of the most important lessons a young adult can learn is the importance of maintaining good credit, spending, and saving habits. Next on the list is, of course, making your payments on time for a minimum of 6 months. It demonstrates a habit of good spending and responsible credit (which makes lenders view you as a less volatile lending target). Also avoid opening unnecessary lines of credit with online retailers. Be smart about researching your credit cards (more on that here).

Overall, establishing credit is extremely important. Don’t let those huge debt numbers scare you away from giving you a really solid head start in life by starting to build good credit at a young age. Credit, like most things in life, can be a great asset if done properly and safely.

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