Debunking 3 Common Myths about Types of Consumer Credit

Think you know everything there is to know about credit?

Maybe not…

Here are a few misconceptions that you might have wrong.

Misconception #1:
Credit is always paid back over a series of payments the truth single payment credit is paid back with one payment made within a certain period of time people often think credit refers to a debt that gets paid back over time but single payment credit is only paid back with one payment made by a certain date. The upside it’s the only type of credit that usually doesn’t have interest charges. The sources utility companies medical services some retail businesses it includes things like utilities that you use throughout the month and then pay for or a medical bill that insurance doesn’t cover. The way to handle it – pay promptly as long as you pay promptly these debts usually aren’t a problem.

Misconception #2:
Installment credit always has better interest charges the truth’ installment credit isn’t just traditional loans with low fixed rates the upside the benefit of installment credit is that it usually has fixed payments. So you make set payments over a set period of time. This includes mortgages, auto loans, student loans, payday loans and even store credit lines for furniture and electronics.

The way to handle it – go for fixed, avoid short term. Installment is the easiest to manage when it’s simple, but many subprime lending tools like variable interest rates and short term
installment loans with rollover plans can be tough to manage and sustain better ways to handle it beware anything that subprime monitor your debt to income ratio closely maintain good credit so you can qualify but even with lending tools that aren’t subprime be careful keep your debt-to-income ratio below 36% and maintain a high credit score so you qualify for fixed loans at the lowest rates possible.

Misconception #3:
There’s no way to get around high interest charges with revolving credit the truth if you pay off balances in full every billing cycle interest charges don’t get applied with revolving credit you pay off the debt at regular intervals usually with higher interest but those interest charges are only applied on the balance that remains after each billing cycle the upside purchasing power the sources credit card companies gas stations with gas cards retail stores with in-store credit cards in fact issuers offer plenty of incentives to keep you using the accounts like cashback gas discounts and even things like credit score tracking and fraud protection the way to handle it painful or go from low APR just try to pay your debts off in full every billing cycle if you can’t pay off for purchase or a balance incurred from something like holiday shopping in one cycle make sure to put it on a card with low interest better ways to handle it never let revolving debt payments take up more than 10% of your income and talk to your card issuers often especially to negotiate rate.