The California Department of Financial Protection and Innovation has released a guide that aims to teach individuals who are new to the United States about the concept of debt, to help them get acquainted with the concept and understand the pros and cons.
The report breaks down the differences between what it describes as good debt — like buying a house or taking out loans to pay for an education — and bad debt, which can include eating out, buying the latest gadgets, or spending too much on fun but fleeting experiences, according to the report, which also warns consumers that if they are borrowing money to cover their everyday expenses, that could be a red flag.
For those getting started in the world of credit, a secured credit card might be a good first step to understand the ropes of borrowing and lending in a low-risk environment, the report said.
The report offers different ways to help consumers manage short-term debt, such as by using debit cards, and avoiding overdraft charges. It warns that products like Earned Wage Access loans, payday loans, or Buy Now Pay Later products can cause problems if overused or not closely monitored.
For consumers who become overwhelmed with paying their debts, the DFPI tells them to breathe first and then take action, including:
- Getting the Full Picture: Know who and how much you owe. There are free financial education programs that can help, like the DFPI’s educational webinars and events
- Planning It Out: Make a financial plan that includes your goals, income, and debts. Add in some savings too!
- Talking to Creditors: Many are open to negotiation, so don’t be shy about reaching out.
- Choosing a Payoff Strategy: Options like the Snowball and Avalanche methods can make this process less daunting.
- Seeking Housing Help: HUD offers advice on housing issues, so don’t hesitate to look them up.
