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Managing Debt
Are there better and worse ways to do it?
Different types of debt are not all created equal. A mortgage is not the same as an auto loan, and neither is the same as credit cards. They all impact your credit rating differently, so it’s a good idea to understand them. Here is an explanation of the differences.
One reason it’s a good idea to know the types of credit that are available is that the type you choose can have an effect on your credit rating.
Installment Credit
If you borrow a large lump sum and are required to pay it off in regular installments, then you have installment credit. Examples include a mortgage as well as auto or student loans.
Typically you are required to pay a fixed sum every month, though the pay period could theoretically vary. If you got a large business loan, for example, and only had to pay at the end of each quarter, that would still qualify as installment credit as long as you had to pay the same minimum amount each time.
In some cases, borrowers can pay off these loans more quickly, and this can have advantages.
What happens if you pay extra?
Let’s say you borrow $100,000 with a 30 year mortgage at 3% interest. Over the lifetime of the loan, you would…
