Article

Financial Literacy

Introduction to Credit and Debt Management

Cayden Hudson  •  Youth Finance Network  •  Posted: December 8th, 2024

Understanding credit and debt management is a crucial step towards financial independence, especially for the young and inexperienced. Credit is the privilege or permission to obtain goods, amenities, or services on the promise of future payment, generally with the addition of interest. Debt is the sum of money that you are obliged to pay after borrowing. Managed well, these tools can help you achieve financial goals, such as buying a car, paying for college, or starting a business. Poorly managed, they can lead to financial stress and long-term consequences.

A key component of credit is your credit score, a number that reflects your borrowing history and financial reliability. Building good credit involves paying your bills on time, keeping credit card balances low, and avoiding excessive loan applications. A high credit score can help you secure loans at lower interest rates and even affect your ability to rent an apartment or get certain jobs. 

The first thing in managing debt is to understand the line between ‘good’ and bad debt. ‘Good’ debt-a student loan or mortgage, for instance-is an investment in your future because it has the potential to increase earning capability and improve living standards. Bad debt, however, includes high interest rates with no benefits thereafter, such as that accumulating from unpaid credit card bills.

Making a budget is a necessity in credit and debt management. Keep track of your income and expenses to make sure you are not living beyond your means. If you must borrow, borrow only what you can easily repay.

Knowledge is power when you get down to it. Learn all about finances; ask questions and take advice from people you trust or even financial advisers. Practice good, consistent habits that will enable you to use credit and debt to your advantage in creating the future you want for yourself.

This article has been reviewed and fact-checked by the editorial team at Youth Finance Network as of December 8th, 2024. © Youth Finance Network, 2025.