[upbeat music] [Female voice] No one likes being in debt, but sometimes, well, you have to borrow money in order to invest in something big for your future like your college degree or a house like Hector. Hector knew it was important for him to make a plan to pay his existing debt in tandem with a good spending plan that would help him avoid unnecessary debt. What is debt? Well simply speaking, debt is an amount of money you borrow that must be paid back. Whether it's borrowed with a loan or through a credit card, it is money that has to be paid back and usually with interest and fees. Hector learned that there are two kinds of debt. There is bad debt like car loans and credit card debt and good debt such as a student loan, a home mortgage, and business loans. An easy way to think about this if that good debt is an investment in something that will increase in value.

For example, student loans are an investment in yourself, and if used wisely, can be a great tool to help pay for a degree that will increase your earning potential and quality of life. When his loans go into repayment, he will need to make his payments on time and in full to ensure his loans remain in good standing. If he doesn't, there could be serious consequences for his credit and overall financial well-being. Bad debt is when you borrow money for something that does not increase in value. Unfortunately, you may not always be able to avoid bad debt. For example, most people don't have the resources to pay cash for a car. However, you should always be cautious about how much bad debt you take on, and there are other ways that debt may get away from you, resulting in debt distress. Hector had many of the signs of debt distress like only making minimum payments, using his credit cards to pay living expenses, and even paying his bills with his savings. Fortunately for Hector, he discovered there is a smart way to borrow. While he was a student, Hector created a spending plan to see how much he needed to pay for his basic educational expenses.

Even though he was offered more in loans, he only borrowed what he needed based on his spending plan. Hector also made use of loan calculators to determine how long until his loan is paid off, what would happen if he made extra payments, and even how long it will take him to pay off his credit cards. One way to pay his debts was to plan a month at a time and prioritize the debts. He could do this by starting with either the debt that has the highest balance or the highest interest rate. Instead, Hector chose to use the snowballing approach. He listed his debts from smallest to largest and paying the minimum balance on all of his debts while paying more on the smallest one. When he finished paying off the smallest debt, he then put that payment amount towards the next smallest debt until he paid that one off.

Then he repeated the process until they were gone. Hector knew not to get impatient and go for the quick fix. He made sure to avoid the temptation to use pawnshops, payday loans, or title loans to try to resolve his debt. Instead, he made a plan. In addition to creating and using a spending plan, he prioritized his debt repayments, prioritized his basic expenses, and worked his debt repayment into cost on his spending plan. Hector also looked for assistance by speaking to the folks from the Bears for Financial Success program on campus. Now, Hector controls his money, his debt, and his future. And with a solid spending plan and debt repayment plan in place, you too can become an empowered financial decision maker like Hector..

As found on YouTube