Credit and You – You are in “Charge!”

When you borrow money or charge a purchase, you are using credit. Very simply, credit means buy now, pay later. For many people, this can be a problem. When you use credit, you are promising part of your future income to pay for something that you plan to use now. When you decide to use credit to pay for something, it is very important that you consider the effects the purchase will have on your budget—both in the present and in the future!

Another module introduced the concepts that your actions have consequences and opportunity costs. When considering whether or not to finance a purchase, or buy on credit, you must decide if the opportunity cost is worth it. The opportunity cost of using credit is that you will have less money to spend in the future because you have already committed some of your future income to pay for your current purchase. You have to decide if having and using the item now is worth giving up that future income for as long as it takes to pay back the loan.

For some purchases, that may be a relatively easy choice. For instance, if you take out a student loan to pay for college, it will take you 10 or more years to pay back the loan. However, when you invest in your education, you are investing in your human capital, which results in higher earning potential. By taking out a loan to pay for your education, you are making yourself more valuable to employers, which will result in a higher salary. In this case, as long as you don't borrow too much money, the opportunity cost is less than the benefit of higher earning potential. Remember the marginal benefits rule: if the benefits outweigh the costs, go for it!

There are various types of credit people use, and a credit card is just one way to finance purchases. In this interactivity, you will discover several methods of financing what you buys. Click the player to begin.

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Which Credit is Best For You?

It is important that you know about the types of credit and the sources for the various types of credit. How do you know which type of credit is best for a purchase? Click the player button to begin.

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A Closer Look at Credit Cards

Credit cards are some of the most commonly used, and abused, types of credit. While they offer many advatanges over credit options, they also have the greatest potential to get the card holder into debt and stuck there for a long time. Learn all about credit cards so that you can get the right one for your needs.

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