What to know about debt this Financial Literacy Month

(NC) Debt can be difficult to discuss. It can feel complex and intimidating, and being in debt can sometimes carry shame or stigma. That can make people reluctant to open up about it or get help. But this November’s Financial Literacy Month is a chance to look at this difficult subject head-on. Debt may sometimes feel like an oppressive force, but it’s a solvable problem—sometimes the first step is recognizing that. Here are some things to know about debt:

There’s good debt and bad debt.

• Bad debt usually comes from borrowing money for something that isn’t essential, loses its value quickly, or has no or minimal return; for example, an unpaid credit card balance.
• Good debt is borrowing for something that typically offers a return on your money. For example, student and business loans can help people get new careers off the ground. A mortgage is often considered good debt because you can build equity, unlike renting, and the home may rise in value later.

You don’t have to figure out your debt alone.

Money management is a skill like any other, and there are free resources and courses available on a number of financial literacy topics, including debt. For example, Money Matters is a free program for adult learners that can help you build your knowledge and confidence with money management. By getting familiar with how your debt works, you’ll be better able to create and carry out your plan to repay it.

How to assess your debts.

Every debt has two numbers you need to know:

• The principal is how much money you initially borrowed. As you pay down the debt, the principal gets smaller. The amount that you still owe is called the balance.
• The interest rate is how much extra it costs you to borrow the money, shown as a percentage.

The important takeaway from this is that paying down your principal also lowers your interest payments. This is because the interest you pay is always calculated using your current balance. One way to manage debt is to pay down the debts with the highest interest rates first to reduce future interest payments.

Learning about managing debt, as well as other financial literacy topics, can help you handle your finances more easily and effectively. Find out more at abcmoneymatters.ca.

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Here’s what you should know about debt

(NC) Debt can be difficult to discuss. It can feel complex and intimidating, and being in debt can sometimes carry shame or stigma. That can make people reluctant to open up about it or get help. Debt may sometimes feel like an oppressive force, but it’s a solvable problem—sometimes the first step is recognizing that. Here are some things to know about debt: