Financial Literacy - Smart borrowing
debt
10 do's and don'ts for borrowing money

4. Do pay on time, every time

"Never miss a payment, never make a late payment, never make a short payment," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling.

"And if you do, I have a mental image of a red flag being raised in the bank over your account," she says.

Though emergencies and accidents do come up, avoid paying late if at all possible. If you must do so, prioritize your creditors. In extremely tight months, skipping the cell phone bill or the cable bill will have a less deleterious effect on your credit report than skipping the credit card bill.

"Just one late payment can lower your credit score by 100 points," says Cunningham.

Paying credit cards late can cause an avalanche of bad news, including fees and higher interest rates.

5. Do remember borrowed money is not free money

If you earn $50,000 and you have a card with a credit limit of $10,000, it may seem like you're swimming in money. But your credit limit shouldn't be confused with income or money waiting to be spent. Relying too much on borrowed money can have you devoting increasingly large chunks of future income to paying off loans.

Debt is slavery, says Mike Mihalik, author of "Debt is Slavery: and 9 Other Things I Wish My Dad Had Taught Me About Money."

"People may think that equating debt to slavery is extreme, but for many people the main reason they go to work is to make the payments on their car, house or plasma TV," he says.

"Debt often traps people in jobs they may not even enjoy. They have become slaves to their debt," Mihalik says.

Not only does borrowing cost interest and fees, but it deprives you of future opportunities. Instead of servicing debt you could be buying different items or investing.

In other words, your past-self is robbing your future-self -- which is a good reason not to borrow frivolously.

6. Don't borrow frivolously

Debt can be divided into two piles: the good debt and the bad.

"Borrow money only for good long-term purposes, like to get an education, to buy a car, to buy a house, to finance a business," says Bolson. "Those are all good reasons to borrow money. And you would expect to pay off that loan before you've reaped all the benefit from it."

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Borrowing for fancy meals, not-so-fancy meals, or transient pleasures, such as vacations, falls squarely into the bad debt category. The bills for these purchases will haunt you long after that post-vacation glow fades.

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