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The Good, the Bad and the Ugly Kinds of Debt

February 6, 2018 | TS Bank

Kyle Osborne has been with the TS Institute, a nonprofit dedicated to providing financial literacy resources and training since 2012, helping to teach kindergarten through seniors on the importance of financial education and wellness. However, Kyle admits that financial stability hasn’t always come easy for him and it is something that he and his wife are still working toward today.

Growing up Kyle’s home life was like any other, but with a mother and father that had very different views on finances, his mother a “saver” and father a “spender.”

“There would be times when my dad would just show up in the driveway with a new Harley.” Said Kyle. “My mother would be like, ‘what are you doing!”

Kyle’s brother adopted the levelheaded-side of his parent’s financial relationship, and unfortunately, Kyle admits he developed the “spender” mentality. By the time he and his wife had married they had accumulated over $118,000 in student loans, and were looking at a $1,100 monthly payment.

The couple was eager to start a family and purchase a home, but they knew debt and credit are two things that go hand in hand. Something had to be done quickly to eliminate their debt and improve their credit if they wanted to achieve financial prosperity in the future.

What does a good credit score look like?
800+ Excellent
740+ Very good
670+ Good
580+ Fair
<580 Poor

With good credit in mind, Kyle and his wife established a plan of where they wanted to be in the future, writing down three tangible, financial goals for the next five years. Next, they mapped out their debts and established a budget. Knowing they could not pull off a $1,100 monthly loan payment with a nonprofit salary they called and renegotiated payments with their lenders. Kyle and his wife made the decision to NEVER miss a payment. The couple even sold one of their cars to help eliminate debt quicker, all with a goal in mind to build good credit.

FICO Credit Scores can be broken down into five different segments:

1. 35% Payment History
This is the measurement of how well you have paid your debts in the past. Make sure you ALWAYS pay on time. 

2. 30% Amount Owed
This is how much you owe overall in credit right now. It is very important to pay off debt as soon as you can.

3. 10% New Credit
This measures how many new lines of credit you have attempted to open recently. Too many new accounts in a short amount of time could be a credit risk.

4. 15% Length of Credit History
This is the age of your oldest credit account.

5. 10% Credit Mix
This portion takes into account the different types of credit accounts you have used, including credit cards, retail accounts, installment loans and mortgage loans.

One might be thinking, debt is a good thing it helps you build credit. This might be true, however, according to Kyle there are several different types of debt. Some are better than others, it is important to look at interest rates, and know you have the money to ALWAYS repay the loan on time.

Kyle breaks down credit into the following segments:

The Good
These are low interest and typically will have a reasonable amount of time for repayment.

  • Mortgage
  • Federal Student Loans

The Bad
These tend to have a high interest rate, and may require something valuable as collateral.

  • Installment Loans
  • Private Student Loans
  • Pawn Shop Loans

The Ugly
These are extremely high rate, short term types of loans that may require you to payback in a week or a month

  • Pay Day Loans
  • Car Title Loans
  • Credit Card Cash Advances
  • Casino Loans

Coin Toss
These types of credit can have high or low rate depending on the lender and your credit history. These can be great for building credit, but can also be a slippery slope into accumulating more debt.

  • Credit Cards
  • Auto Loans

Maintaining a healthy credit score is a big part of being financially well. Kyle recommends checking your credit three times per year by visiting www.annualcreditreport.com. This website pulls credit scores from three different bureaus: Equifax, Experian, and TransUnion. Each company uses a slightly different algorithm to compute credit score, so keep in mind this means that each score might vary slightly. You are only allowed to pull each of these once a year, so, Kyle recommends pulling one every four months to monitor your credit score throughout the year.

Kyle and his wife are today still working to pay off debt and are now only left with around $25,000, having paid off $93,000 in a little over 11 years. Within these 11 years Kyle’s wife was able to be a stay at home mom and the couple has purchased a first home, sold and bought a second home. The couple is proof that with a well-drafted plan and teamwork eliminating debt and creating good credit is achievable.

At TS Bank, we IGNITE PROSPERITY® by helping our clients do more with their money. Whether it’s saving a little extra cash each month or accomplishing a long-term strategy, our goal is to help you transform your financial life. Call and schedule an appointment today, one of our team members would love to help you do more with your money at TS Bank. TS Bank has eight locations in central and southwest Iowa. For more information visit tsbank.com or call 844-487-3030. #igniteprosperity