Credit 101

An important part of personal finance is how you manage your debt. Ideally, you would not have any debt, but in practice, most families do. It is not likely that most persons would be able to buy a car, a house, an education, or even major appliances without having to incur some debt. Sometimes, debt may actually be desirable, especially if you could borrow money at a low interest rate to make a high-interest investment.

Debt makes everything cost more. If you saw a sign in a store window advertising "Sale -- Everything 25% Off," you might be tempted to rush in and buy, buy, buy. But what if the sign said "Sale -- Everything 25% More Than Marked"? That is just what happens when you pay for goods and services using debt. Moreover, you may be using debt without even realizing it.