Smart Ways to Use Credit and Manage Debt

There can be both pros and cons to using credit. Here's how to sort the good from the bad and figure out what debt payments to prioritize in your budget.

Some of life's biggest milestones—such as buying your first car, attending college or purchasing a home—come with big price tags. And since most Americans don't have the cash handy to pay for all of those big expenses up front, it's no surprise that many people take out loans.

If you're managing debt with multiple loan payments every month, it's important to hit your minimum required payments. However, redirecting any additional funds toward the loans that are impacting you the most can save you a lot of money in the long run—giving you more control over your future and a greater ability to reach your financial goals. Here are some smart ways to manage your credit along with tips to help you decide which debts to combine or pay off first.

Let's get organized

A great starting point for managing debt is to get familiar with the details of each of your existing accounts. Take a moment to look at your latest statements, and then write down the following for each:

  • Total amount owed and interest rate
  • Amount of payments going toward the principal balance versus interest
  • Estimated payoff dates
  • Promotional period end dates  (like for a 0% or reduced interest rate)

Next, let’s break down some of the most common ways people use credit to show how each can influence the bigger picture. With an overall better understanding, you'll be set up for successfully managing debt and making informed financial decisions that are in line with your goals.

4 of the most common ways people use credit

1. To go to college

For many, part of the modern-day American dream includes investing in yourself through higher education. To go to college, many people will take out a student or personal unsecured loan to pay for tuition. If you go this route, it can be a good way to establish your credit history and build your score. The better your score, the better offers and interest rates you'll find with any future lending situations, like when you purchase a car or a house. And the longer you consistently pay off a loan, the more it helps your score.

If you're looking to pay off all of your debts, your student loans may not necessarily be the best to focus on first. With most loans, you pay interest and you never get that money back. But, with student loan interest, you may be able to get some of that money back through a deduction on your tax return. (Consult a tax advisor for more information specific to your financial situation.)

Pro tip: See if you can refinance for a lower rate

Student loans are among the easiest types of debt to refinance. (See 5 ways to lower your student loan payment.) If you borrowed for college at a high interest rate, it might pay off to see if you can lower your rate by refinancing. Even reducing your rate by a single point could save you thousands of dollars over the course of several years.

2. To buy a car

Whether for work or for school, a personal vehicle is necessary to get from point A to point B. As a result, auto loans are another common type of credit you can apply for. Like with your student loans, paying off your car loan on time and without missing a payment will also help your credit score.

As far as prioritizing extra payments toward your car loan, if you opted for a longer loan term—say, 72 months versus 36 months—there's a good chance that you may owe more than what the vehicle is now worth. Vehicles depreciate in value quickly, so many drivers find themselves in this situation. Do some online research to get an estimate of what your vehicle is worth (Kelley Blue Book is a great place to start), and then compare that to your loan balance. If you owe more than the estimated value, it may be wise to prioritize extra payments toward your car rather than student loans or a mortgage.

If you do have a high interest rate on your vehicle loan and your credit has improved since it was purchased, you can also see about refinancing your existing auto loan for a lower rate. Even $25–$50 a month in savings can make a difference toward your long-term goals.

Pro tip: Start saving once it's paid off

Once you get that vehicle paid off, try to save a portion of your previous monthly payment for your next vehicle purchase. The bigger down payment you're able to make when purchasing a vehicle, the more bargaining power you'll have and the better interest rate you'll be able to secure.

3. For credit card purchases

Though the variable interest rates that come with credit cards are typically higher than other types of debt, they can still provide multiple benefits if used wisely. Like with other loans, the longer you maintain a card without missing a payment or going over your limit, the more it can help your score.

Compared to student or auto loans, a significant difference with credit card balances is that they count toward your "credit utilization"—one of the five major factors that impact your credit score. If you use too much of your available credit without paying it down every month, it could hurt your score rather than help it.

Another potential benefit with certain credit cards is that they can offer perks such as rewards. The BB&T Spectrum Cash Rewards credit card, for example, offers 3% cash back on gas, 2% cash back on utilities and groceries and 1% cash back on all other eligible purchases. , Ideally, you could pay your balance in full each month to avoid paying interest and maintain a favorable credit score all while earning rewards at the same time.

Pro tip: Consider a balance transfer

If you're being charged a lot of interest on another card, it could benefit you to transfer the balance to a new one (so long as you do this responsibly and focus on paying off the transferred balance). The BB&T Bright® credit card comes with an introductory offer of 0% annual percentage rate (APR) on purchases and credit card balance transfers for 15 months, with a variable rate of 13.24%–22.24% after that.

Want to find out if you could save on interest or earn rewards with a BB&T credit card? You can easily check to see if you prequalify without impacting your credit score.

4. To purchase a home

If you plan to stay in the same house for a while, a mortgage can be a great investment and a smart use of your credit. Similar to student loans, mortgage interest may turn around a small portion of what you pay back through mortgage tax deductions. (Consult a tax advisor for more information specific to your financial situation.)

Have you checked your loan statements to see what your mortgage interest rate is? In the past 10 years, mortgage interest rates have been historically low—so if you started your mortgage with a high rate back in the 90s or early 2000s, it wouldn’t hurt to check and see if you can refinance your existing mortgage for a lower rate.

Pro tip: Try the snowball method

If you're close to paying off your mortgage, it may be best to do that before tackling other debts. Once the loan is paid off, you can use those extra monthly funds elsewhere. The strategy of paying off lower-balance loans, then putting that money toward other debts once the lower balances are paid off, is known as the "snowball method" of paying off debt.

Consider debt consolidation

Another option is to consolidate multiple debts into a single monthly payment. Use our debt consolidation tool to see what makes sense for you. If you own a home, applying for a home equity line of credit is one way to consolidate.

Consult a tax advisor for more information specific to your financial situation.

RELATED: Should I use my home's equity for debt consolidation?


Choose the strategy that works for you

Overall, there are many smart ways to use credit in your favor—and managing debt involves considering your goals and your entire financial situation. Look into refinancing your higher interest rate loans (but don't apply for too many lines of credit at once). To come up with a payoff plan, determine which accounts are costing you the most in interest (which may be affecting your credit score the most) and consider your personal priorities.

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  • 1

    There is a monthly cap (first day of a month through the last day of a month) of $1,000 on spend at the bonus rate combination of 3% at gas stations and 2% at grocery store/supermarkets and utilities. Once the $1,000 monthly spend limit is reached, you will earn the base rewards of 1% for those purchases.

  • 2

    You may earn rewards on eligible purchases made with your credit card. Eligible purchases include any signature-based purchase, Internet purchase, phone or mail-order purchase or automatic bill payment, excluding cash advances, traveler’s checks, access checks, balance transfers, money orders, cash equivalents, fees, interest charges, credit insurance, fraudulent transactions, credits and returns (each a qualifying purchase).

  • 3

    BB&T Bright APR for purchases and balance transfers is 0% for 15 months. After that, the APR is determined monthly by adding 7.99%-16.99% to Prime Rate. BB&T Bright 12.74% to 21.74% APR (annual percentage rate), BB&T Spectrum Cash Rewards 14.74% to 23.74% APR, and BB&T Spectrum Travel Rewards 14.74% to 23.74% APR are variable rates tied to The Wall Street Journal (WSJ) Prime + 7.99% to 16.99% (BB&T Bright), and the WSJ Prime + 9.99% to 18.99% (BB&T Spectrum) based on credit history. The Prime Rate used to determine your APR is a variable rate and is the highest prime rate published in WSJ as of the first day of the month. WSJ Prime currently is 4.75% as of October 31, 2019.

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