4 debt lessons we should all learn early in life

What if a money guru could've been by your side all along, guiding you through your money choices from Day 1 as an adult? How would that person have helped you steer a different financial course? 

When it comes to the big "D" word—I'm talking about D-E-B-T—it tends to cast a shadow of doom and gloom on pretty much everything. Here are 4 debt lessons I wish I’d learned early in life that would have put me in a better place, moneywise: 

1. Know the cost of putting things on credit 

When we want or need something, it's all too easy to pull out the credit card, make the purchase, and worry about it later. You get the thrill of immediate gratification, or the relief of being able to cover bills for the month.

But nothing is free, and that includes credit. 

Case in point: You're itching for new additions to your fall wardrobe, and you put $500 in clothing purchases on a department store credit card with a 21% interest rate. Let's say it takes you a year to pay off. To pull that off, you'll need to pay $46.60 a month. The interest you end up paying is $59.60, which makes the clothing more pricey. Would you rather spend $60 shopping for things you love (or save it for a rainy day) or give it to the bank?

I learned that if I can't pay for a credit card balance in full each month, think twice. Your future self will give you a pat on the back. 

2. Staying out of debt costs less than staying in debt

Here's the thing: if you feel like you can't afford to pay off your debt, know that it’s even more expensive to keep it. Everything becomes more affordable the minute you manage to get rid of debt. 

Why's that? Well, for one, you can reclaim all that money you would have been spending on interest. Going back to the clothing example, if money is tight it makes more sense to spend $500 on clothes rather than $560. Charging it might delay the expense, but it almost always increases it. 

Also, getting rid of debt helps you free up cash flow. That means you could choose to use your money in other ways instead of handing over minimum payments (or more) to your creditors. That's money you can put toward your emergency fund, toward a long-term goal—whatever matters to you. 

Third, lenders and creditors like to see a lighter debt load. It makes them feel more confident in offering you credit. Lower debt means lower credit utilization—how much debt you carry against the total limit on all your credit cards. Lower utilization usually leads to a higher credit score, and that means that when you do need to borrow, you could get better terms. That 21% credit card? Maybe you could get a 10% interest rate instead. In this way, getting rid of debt can lead to long-term cost savings. 

3. You don't have to have debt to have a good credit score 

This persistent myth seems to have been around since the beginning of time. But like the Loch Ness monster and Bigfoot, let’s just say the evidence is unreliable. You don't need to carry any debt to have a solid score. 

It turns out that folks with perfect credit have a 4% credit utilization rate. Here’s what that looks like: if you have a credit card with a $2,500 credit limit, your balance shouldn’t be over $100 when it gets reported to the credit bureaus (usually on or right after your statement closing date). Either avoid using your credit card, or when you do, pay it off early.  

4. Your financial choices have consequences

Money management means that every choice you make with money has trade-offs and consequences. We're not saying people can "choose" their way out of debt. It’s that we have to be mindful and purposeful with the money that we do have. It's about practicing sound judgment. 

When possible, choose to avoid debt even if that means you have to do without. When avoiding it isn’t possible, choose an active strategy to get rid of your debt. Some of your options:

• DIY debt payoff strategy (snowball, avalanche, blizzard)

• Consolidate your debts with a new loan 

• Resolve your debts by negotiating with your creditors to accept less than what you owe

And if you’re learning the lessons the hard way, give yourself a hug. Today is a new day and a great time to choose your path ahead, even if you’ve made mistakes in the past. Most of us do. Forgive yourself and move forward.