Family Finance: Credit and Debt

handful of credit cardsCredit can be a successful financial management tool. It allows you to buy things when you don't have cash on hand to pay for them. Credit can take many forms, including installment loans, credit cards, department store revolving charge accounts, home equity loans, and other kinds of time payment plans. On this page:
Credit | Credit Cards & Credit Card Debt | Debit Cards | Credit Scores & Reports | Financial Problems


Credit is something everyone uses. Every time you use the telephone or turn on a light or the air conditioning, you're using credit just as you are every time you use a credit card or take out a loan.

Credit represents an agreement to receive goods, services or money now and pay for them in the future. To help you decide when to use credit, consider the advantages and the disadvantages of credit.

Consumer credit includes both traditional and nontraditional sources. There are criteria for each source that lenders use to decide whether to give credit. This publication provides a description of available credit sources, and an explanation of what lenders look for before extending credit.

Before deciding to apply for credit, there are questions you may want to consider. You may want to review some guidelines for using credit, estimate how much credit you can afford, and consider if the purchase requires special consideration.

No matter what form of credit you have, you will probably have to pay interest. Knowing how to determine the exact annual percentage rate of a credit transaction will help you know the true cost of the credit.

Using credit is a major part of managing personal or family finances for most people. But unfortunately credit and the resulting debt may allow people to spend beyond their means. Know how much debt you can afford without negative consequences. Setting a personal credit limit (PCL) is one way to manage credit use.

Credit Cards and Credit Card Debt

Did You Know...over half a billion credit cards are in use today with balances totaling more than half a trillion dollars. Consumers pay over $70 billion in interest and fees on bank cards alone each year. More than 3 billion mail solicitations for credit cards are mailed annually in the United States alone.

Types of credit cards

There are many different types of credit cards. It is important as a consumer to understand these types to begin the process of choosing and using credit cards. Deciding which credit card is best for you may be as simple as carefully reading the application and deciding how you'll use it.

  • Have you read the fine print in the contract?
  • Is there an annual fee?
  • What is the APR?
  • What is the grace period for paying your bill?

Credit cards can be good or bad for you, depending on how you use them.
Check out these suggestions for using credit cards wisely.

Shop and compare. Shopping around for a credit card can save you money on interest and fees. You'll want to find one with features that match your needs. This information can help you.

  • Understand the features of credit cards.
  • Compare credit card features and costs.
  • Know your rights when using your credit card.
  • File a complaint if you have a problem with your credit card.

Debit Cards

Debit cards, which use money from your own bank accounts, are different from credit cards. Learn about their advantages and disadvantages and how to use your debit card wisely.

Credit Scores and Reports

Knowing and understanding what is in a credit file, who puts the information there, and who uses your file information is important for you as a consumer. You have consumer rights related to your credit file. Your credit file contains:

  • Identifying information about you-address, phone, social security number
  • Credit history information
  • Information of public record such as liens, judgments, etc.
  • Information about inquiries

Credit file information and credit scores impact many areas of your life, including eligibility for loans, housing, and utility services. It is important to know how to correct inaccurate information and how to improve a credit score.

Identity Theft and Scams

If credit use is less than perfect, you may find yourself a target for a potential scam either via telephone or the Internet. Or you may be tempted by television advertising promises. Learning about potential credit scams and the laws related to these can protect you as a consumer.

Identity theft is always a concern. Take every step possible to protect your credit cards and all personal identity documents. A few tips to follow:

  • Don't carry your social security card or passport with you unless needed.
  • Never print your social security number or driver's license number on your checks.
  • Lock your doors every time you leave home.

Financial Problems

Many people get behind on bills at least once during their lifetime. Ignoring debts can only lead to creditors taking action against you.

Knowing how to negotiate with creditors requires using a few simple tips:

  • Be polite, be specific and be practical.

There are only two ways to solve financial problems: increase income and decrease debt.

To do this you need to develop a plan for paying back debts. A debt payment plan shows the way to start getting out of debt, gives a better sense of control over the situation, and is a start on the road to solving financial problems.



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This article has been written and reviewed by UNL Extension Educators and Specialists.

UNL Extension Resources for your family finances image Money saving ideas for shopping, cooking and meal planning, Cook it Quick newsletter and recipes.

eXtension - National Extension resources on personal finance.