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Debt vs. Credit: Definitions, Examples and Tips

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Credit is how much you can borrow, while debt is how much you owe. You’ll often find the two terms discussed together because they’re connected — using credit creates debt.

The better you are at managing debt, the more credit you’ll have access to in the future — that’s why it’s so important to understand the difference between debt versus credit.

What is debt?

Debt is owing money to someone or something. Typically, when you have debt, you’re paying interest to a creditor. That’s not always a bad thing, though, as debt can take many forms.

Debt examples

  • Candace has a $200,000 mortgage on her home and $10,000 in student loans. She also has an auto loan for $15,000. Candace has $225,000 in total debt.
  • Marco has $5,000 in credit card debt and a $3,000 personal loan. Marco has $8,000 in total debt.
  • Ty has a $10,000 auto loan, $2,000 in credit card debt and owes the local hospital $3,000 for an emergency room visit. He has $15,000 in total debt.

As you can see from the examples above, people can have several different types of debt. Some types of debt are considered “good debt” and some are considered “bad debt.” We’ll go into more detail about good and bad debt later.

What is credit?

Credit is the ability to borrow money with the understanding that you’ll pay the lender, merchant or service provider back later. If you don’t have enough cash to buy a home or a car, or to pay an unexpected bill, credit allows you to take on debt. In that way, credit is convenient. But credit can also get you into trouble if you take on more debt than you can afford to repay. It can also get you stuck in a cycle of debt if you rely too much on high-interest credit cards or payday loans.

Credit comes in two main forms: secured and unsecured:

  • Secured credit requires some sort of collateral to back the loan, such as your home or a car. If you default on the loan, the lender has the right to take your collateral. Because collateral lowers the lender’s risk, you may find secured credit is easier to qualify for and may come with better terms than with unsecured credit.
  • Unsecured credit isn’t attached to any collateral, so lenders will rely heavily on your credit health and finances to determine your eligibility.

Credit examples

  • Secured credit: Mortgages, auto loans, home equity loans, home equity lines of credit, secured credit cards, title loans
  • Unsecured credit: Credit cards, student loans, personal loans, medical debt

What is the relationship between debt and credit?

The relationship between debt and credit is unique because one cannot exist without the other. People with no history of using credit don’t have a credit report or a credit score, and that makes it difficult for them to get approved for a loan and take on debt. However, if you have a history of managing debt well, lenders are more confident that you will make payments on time, and more willing to extend credit.

How to manage debt and credit responsibly

When possible, avoid using a credit card or taking out a debt without having a clear plan for repayment, unless you know you’ll be able to repay the amount you owe.

Payment history is one of the most important factors in calculating your credit score — in particular, in FICO scores, it’s 35% of your score. Pay all bills on time to avoid late fees and having late payments reported to the credit rating agencies.

If you owe money on your credit card and can’t afford to pay the balance in full, try to pay more than the minimum amount. Paying only the minimum each month could end up costing you quite a bit when interest is factored in, and it could take years to pay off the balance. (Our credit card payoff calculator can help you figure out how long it will take to pay off your balance and the interest you’ll be charged.)

If you can’t pay more than the minimum, that’s OK. Paying the minimum at least will help build a healthy credit history.

Whether a payday loan or title loan, be mindful of the fees that are tacked on to your debt. The annual percentage rate, or APR, can be a good measure of your cost of borrowing.

Your debt to credit ratio is a measure of how much of your available revolving credit (usually credit card limits) you’re currently using. You can calculate this ratio by dividing your total credit card balances by all of your revolving credit limits. Debt to credit ratio is a significant factor for calculating your credit score — the lower your ratio, the less risky you appear to creditors.

When you apply for new credit, the lender checks your credit, which results in a hard inquiry on your credit report. Hard inquiries can lower your credit score — especially if you apply for or open several new accounts within a short time frame. This signals to credit rating agencies that you might be having financial troubles.

One exception to this rule is if you’re shopping for a car or a mortgage. Credit rating agencies expect you to shop around for the best rate, so they ignore multiple hard inquiries for the same type of loan made within a 14 to 45-day period, depending on the scoring method.

You’re entitled to a free credit report from each of the three major credit reporting agencies every 12 months. Request these reports from AnnualCreditReport.com and review them for errors. Mistakes on your credit report can impact your credit score, whether you get approved for a loan and how much you’ll have to pay to borrow money.

If you find any errors on your credit report, follow the credit reporting agency’s instructions for disputing the information.

Debt vs. credit FAQ

Lenders and service providers use credit scores to make decisions about whether or not to offer you credit, how much credit they’re willing to extend to you, the interest rate they’ll charge and whether they’ll require a down payment or deposit. Having a good credit score makes it easier to do things like buy a home or a car, rent an apartment, get approved for a cellphone and set up utilities without a deposit.

Your credit score is essentially a measure of how well you manage debt. If you make debt payments on time, keep your debt balances low and use a variety of kinds of debt responsibly, you’ll have a healthy credit score.

Good debt” is used to pay for something that has long-term value, increases your net worth and/or helps you generate income. For example, you might need a mortgage to buy a home, and real estate tends to have long-term value. You might get a loan to start or expand a business, which may increase your net worth if the business is successful. You might take out student loans to get a college degree, which can improve your earning power over time.

“Bad debt” is used to pay for things that have no lasting value. Credit cards are usually considered bad debt, as people may use them to buy things like clothing, electronics, vacations and expensive meals.

Debt tends to carry a negative connotation since it involves owing money. But when used wisely, credit can be a convenient way to pay for many things you otherwise might not be able to afford — after all, few people can afford to pay cash for a home or car.

Before taking on new debt, think through your current finances and your ability to repay the debt in the future. Remember: the more debt you take on, the less available credit and cash you’ll have going forward.

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Plastic Surgery Financing: 7 Ways to Pay for Your Procedure

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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If you’re considering a surgical cosmetic treatment, you may have found that plastic surgery doesn’t come cheap. When paying cash isn’t an option, you may need to consider financing the surgery. That could look like a medical loan, medical credit card, home equity line of credit or 401(k) loan, among other methods. However, you should consider all your options before taking on a large debt or pulling money out of your investments.

Does insurance cover plastic surgery?

Before you consider how to pay for plastic surgery, first get an estimate of how much the procedure will cost, along with follow-up treatments, office visits and other expenses, such as medications. Then, contact your health insurance company to see what your policy covers. How to get your insurance to pay for plastic surgery will depend on the policy, the procedure and whether it’s medically necessary. The insurer will let you know whether you’re partially or fully covered.

How to finance plastic surgery

Medical loan

Medical loans are personal loans by another name. Banks, credit unions and online lenders offer these types of loans, which come with fixed annual percentage rates (APRs) and terms ranging from 12 to 60 months or longer.

When you’re approved for a personal loan, you’ll receive the full amount of the loan upfront and then repay it in equal monthly installments. APRs usually range from around 5% to 25% or higher, depending on your credit and the lender. Loan amounts can range from $1,000 to $50,000 or more.

Most personal loans are unsecured, meaning you won’t need to pledge collateral during the application process. Your creditworthiness is typically the main factor for qualifying for the loan.

What to watch out for: Make sure you understand your loan term, APR, and total monthly payment, and whether the loan comes with any fees, such as prepayment penalties or origination fees. Also, keep in mind that a hard credit inquiry, typically done during the loan application process, may temporarily lower your credit score by a few points.

Medical credit card

A medical credit card is another option for paying for plastic surgery costs not covered by your health insurance, and they work like traditional credit cards. Some examples include the Wells Fargo Health Advantage® Card, the CareCredit Card and the Alphaeon credit card. (Note, however, that not all credit card issuers offer a medical credit card, and they aren’t the same as HSA or FSA cards.)

You get a card with a preset line of credit and APR that you can use to charge your medical bills to the card, then you can either pay off the balance or make monthly payments. Ask the card issuer whether it offers different types of monthly payment plans.

Typically, you can only use medical credit cards within a specified network of health care providers.

What to watch out for: You should understand the terms and how interest is charged before using a plastic surgery credit card. For example, a CareCredit Card for plastic surgery offered (at time of writing) a promotion in which cardholders wouldn’t pay interest on purchases of $200 or more. Cardholders needed to select a repayment option of six, 12, 18 or 24 months, and pay the amount due by the end of the promotional period. But if they didn’t pay their entire bill off within that time, interest was charged from the original purchase date at an APR of 26.99% variable for new accounts.

0% Intro APR credit card

Credit cards are another plastic surgery financing option. Depending on your credit limit, you may be able to cover some or all of your procedure with a traditional credit card. The major factor to consider is the card’s APR. The average credit card interest rate is 16.88% nationwide, but some credit cards come with a 0% introductory APR. These intro periods typically last about 12 to 21 months, and if you qualify, you’ll pay no interest during the intro period.

What to watch out for: These cards usually have deferred interest, meaning interest accrues but you don’t have to pay it during a certain time frame. For example, let’s say your 0% intro APR lasts 12 months. Interest will accrue on all the purchases you make during that time. If you pay off the balance in full during the intro period, then you won’t pay any interest on purchases you made. But if you haven’t paid off your purchases in full, then you’ll owe interest on all the purchases from the previous 12 months. Plus, the interest rate will reset to the regular APR.

Payment plan

Some plastic surgeons do payment plans, or offer in-house options for financing plastic surgery. These can vary in detail and scope, however, so it’s best to check with your doctor’s financing office to see what options may be available. For example, you may need to provide a down payment or pay a preset amount each month. Plastic surgery payment plans may be a good option for people with bad credit, as you may be able to set up a plan without a credit check.

If the medical provider doesn’t already offer an in-house payment plan, then you can propose a plastic surgery payment plan of your own. Just keep in mind: Your doctor doesn’t have to accept your proposal. Take the estimated cost of the procedure, figure out how much you can put toward the amount each month and calculate how long it would take to pay off the debt. If the medical provider accepts the proposal, then get all details in writing before going under the knife.

What to watch out for: Ask the medical provider whether it will charge a fee or interest, and what happens if you fall behind on payments.

Home equity line of credit

With a home equity line of credit, you borrow from the home equity you’ve built, which is the market value of your home minus your mortgage balance.

Here’s how they work: Lenders will generally let qualified applicants borrow up to 80% to 90% of their home value. Once approved, you can draw from the account during a time frame known as the “draw period.” You may pay off the balance and borrow again from the line of credit, paying interest only on the amount borrowed, during this time frame. The draw period is followed by a repayment period, in which you can no longer utilize the line of credit and must repay any balance you have on it.

What to watch out for: The fact you’re securing this loan with your home could spell trouble if you fall behind on payments. If you default, you could potentially lose your home — a concept that seems troubling for any surgery, but especially a voluntary cosmetic procedure.

Home equity loan

A home equity loan also allows you to borrow against the equity you’ve built in your home. It’s different from a HELOC, in that you receive a lump sum of money upfront, then repay the loan in fixed monthly installments with a fixed interest rate over time. Lenders typically allow qualified homeowners to borrow up to 85% of the home’s value.

What to watch out for: Like a HELOC, you’re securing the home equity loan with your home. If you miss several payments, the lender may foreclose on your home.

401(k) loan

Some 401(k) retirement savings plans allow participants to borrow against their balances. If you borrow from a 401(k), you’ll receive a lump sum of money and repay it, with interest, within a set time frame of five years, as regulated by the Internal Revenue Service (IRS). According to the IRS, you may borrow the lower amount of either a) $10,000 or 50% of your vested account balance (whichever is greater) or b) $50,000.

What to watch out for: Taking money out of your retirement account will likely set your retirement goals back, as your money wouldn’t be growing in investments.

Plastic surgery financing for bad credit

Personal loans

Some personal loan companies are willing to work with people with poor credit. The following lenders are listed on MagnifyMoney’s marketplace and typically offer loans to people with lower credit scores.

 


LendingPoint

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Peerform

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Upstart

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APR range

9.99% to 35.99%

5.99% to 29.99%

6.27% to 35.99%

Loan terms

24 to 48 months

36 or 60 months

36 or 60 months

Loan amount

$2,000 to $25,000

$4,000 to $25,000

$5,000 to $30,000

Origination fee

0.00% - 6.00%

1.00% - 5.00%

Up to 8.00%

Minimum credit score requirement

585

600

620

What to watch out for: As personal loans typically don’t require collateral, your credit and financial situation will be heavily weighed in determining your loan eligibility and terms. If you have bad credit, that means you could face high double-digit or even triple-digit APRs.

Secured loans

If you have fair or poor credit and can’t qualify for an unsecured loan, then you may consider a secured personal loan. A secured personal loan allows you to borrow money using some form of collateral, such as a savings account or car, which protects the lender in case you default on loan payments.

What to watch out for: If you fall behind on payments, you risk losing your collateral. The lender may also report any delinquent payments to the credit bureaus, which can damage your credit scores. Weigh the benefits, drawbacks and loan terms before choosing a secured loan.

Average costs for plastic surgery

Plastic surgery costs can vary greatly, depending on the procedure and the doctor. In 2018 alone, Americans spent more than $16.5 billion on more than 17.7 million cosmetic procedures, according to a report from the American Society of Plastic Surgeons. Here’s what some of the more common procedures cost:

4 things to consider when financing plastic surgery

  • APRs: Unless you have a 0% intro APR on your plastic surgery financing and can pay off your balance during the introductory period, you’ll want to consider your total cost of borrowing. Your APR is a great measure of that.
  • Fees: Some common fees associated with plastic surgery financing include prepayment penalties, origination fees and late payment fees. Before signing on the dotted line, ask the lender whether the loan comes with fees — and how to potentially avoid them.
  • Budget: Before applying for financing, make a budget. Ask the medical provider for a full written estimate, then figure out whether you can cover any of it with health insurance or cash savings. Borrowing only the amount you need may help you avoid debt and save on interest costs.
  • Eligibility requirements: Lenders typically check that you can repay the loan per the agreed terms. They’ll do this by checking your credit history, income and other debt payment obligations. Remember that these credit checks may have a negative effect on your credit score.

Be sure to carefully weigh the pros and cons of plastic surgery financing. Plastic surgery can cost thousands of dollars. The expense should not be taken lightly.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Women Still Do More Housework Than Men, Contributing $10K+ in Value Annually

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When you finally get home after work, the last thing you want to do is clean last night’s dirty dishes. But the reality is that many Americans spend their evenings, and even weekends, doing chores. While you may consider hiring a professional to help around the house, doing your own chores may save you thousands of dollars every year.

Using data from the Bureau of Labor Statistics (BLS) on occupational earnings and how much time Americans spend on different chores, we were able to estimate how much it would cost to pay a professional to do those chores instead. We also found that, compared with men, women contribute over $3,000 more in value each year when it comes to unpaid labor at home.

Key findings

  • The average American saves about $9,022 annually by doing their housework themselves instead of choosing to pay a professional to do the same tasks.
  • There is an enormous difference in annual savings between men and women. The average woman’s time spent on chores is worth $10,755, compared to $7,420 for men.
  • Americans spend an average of 107 minutes per day on household activities, including cleaning, food preparation and minor home repairs. When broken down by gender, men spend roughly 82 minutes per day on household activities, and women spend 130 minutes per day on average.
  • We can then multiply these numbers across every woman and man over the age of 15 to calculate the replacement value of household chores in the United States: $1.5 trillion for women and $964.4 billion for men.
  • The largest chunk (and value) of Americans’ time is spent cooking. If we assumed your time spent on cooking was replaced with that of a professional chef, the average American’s time spent cooking is worth $2,856 per year.
    • Again, there is a large disparity between annual savings for men versus women. For women, the average savings on cooking is $3,872, while for men, it’s $1,791.
  • The second-biggest time sink of household chores is general cleaning, such as laundry and tidying up. The average woman spends 50 minutes per day cleaning, while men spend just 14 minutes daily. Replacing that labor with professional cleaners costs about $13.26 per hour.
    • Over a year, the replacement value of that labor is just over $1,037 for men but $3,746 for women.

Women contribute much more value, time to housework than men

Each year, women contribute $10,755 worth of housework. Men contribute $7,420 annually, a difference of more than $3,000. This is an interesting component of the gender wage gap, because unpaid housework can affect a woman’s earning power, as noted in a recent study published by the Luxembourg Institute of Socio-Economic Research. Put simply, women doing more of the free labor at home means that they have less time for paid labor outside the home (or at least less downtime).

Most activities aren’t daily, but the minutes add up

BLS data indicates that women spend an average of more than two hours each day doing housework — men spend just under an hour and a half doing these types of chores. See how many minutes per day men and women spend doing typical household chores:

Men add value through contributing labor to high-value tasks

Although men spend much less time than women doing housework on average, they handle many of the highest-paying tasks, such as car repairs and handyman work.

The three highest-paying chores — car repairs, interior and exterior maintenance and home appliance repairs — are in male-dominated verticals. Were a professional to handle these tasks instead, they would make the following hourly rates:

  1. Automotive service technicians and mechanics: $21.02
  2. Painters, construction and maintenance: $20.70
  3. Home appliance repairers: $19.72

On the other hand, women commit more time to the three lowest-paying jobs, including interior cleaning, animal and pet care and food preparation and cleanup. Professionals in these industries earn the following hourly wages:

  1. Maids and housekeeping cleaners: $11.84
  2. Non-farm animal caretakers: $12.45
  3. Restaurant cooks: $13.26

Cooking accounts for the most time spent and value earned

Americans spend 35 minutes per day on average preparing meals. Women spend more time cooking than men, at 48 minutes and 22 minutes, respectively; this time includes food preparation, as well as cleanup. According to the BLS, restaurant cooks may order supplies, plan the menu and prepare the food, making this the most comparable occupation, with an average wage of $13.26 per hour.

This means that, on average, Americans save $2,856 annually by cooking their own food, rather than paying a professional for this task.

Americans as a whole save trillions by doing their own chores

Unpaid housework isn’t included in our country’s GDP, but that doesn’t mean it’s not valuable. Americans save thousands each year by taking housework into their own hands. Annually, the completion of household chores translates to trillions of dollars in value that’s not accounted for.

American women aged 15 and older save an estimated $1.5 trillion each year by doing housework themselves rather than outsourcing the same tasks. Comparatively, American men who are 15 and older save a total of $964.4 billion. That’s a total of $2.4 trillion in value between men and women.

When housework becomes too much, budget for a professional

While doing household work yourself can translate to serious savings, chores shouldn’t get in the way of your personal or professional development. If you’re one of many Americans spending hours each day toiling away on housework, it may be time to bring in professional help.

Here are some ways to make the cost of outsourcing household chores better fit into your budget:

  • Try the 50/30/20 budget: Under this budgeting rule, you’ll put 50% of your income toward “needs” (this includes mortgage, groceries, utilities), 30% toward “wants” (cellphone bill, gym membership, dining out) and 20% toward savings and debt repayment. If you can, allocate a housekeeper or landscaper into your wants budget.
  • Refinance your car or house: You may be able to secure a lower interest rate on your auto loan or mortgage by refinancing. Lower monthly payments would allow you to make room in your monthly budget to afford help at home. Borrowers with excellent credit may get some of the lowest interest rates, while subprime borrowers will see higher interest rates. Refinancing is generally a great option when you can secure a lower interest rate than what you’re already paying.
  • Consolidate your debt: If you’re making significant payments toward multiple debts, it can freeze up a lot of your income. You could consider consolidating debt at a lower interest rate with a personal loan so you can develop a set budget and free up cash each month.

Methodology

To estimate the value of American’s household chores we first looked at how much time they spent doing each activity. The BLS compiles this data through the American Time Use Survey.

We then estimated how much it would cost to replace this labor with that of a professional. For example, we replaced cleaning with occupation maids and housekeeping cleaners, food preparation with chefs and animal and pet care with nonfarm animal caretakers.

Next, we multiplied the daily hours spent on each activity by the hourly earnings for people who do that work professionally. That gave us the daily replacement value of household chores. We then multiplied that number by 365 to get the annual value. To find the total country value, we multiplied the annual value by the population over the age of 15.

Data for time spent on activities and hourly earnings of professionals comes from the Bureau of Labor Statistics. The number of men and women over the age of 15 comes from the Census Bureau. All data is from 2018.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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