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How Tennesseans can use credit card debt to build credit

It may seem counterintuitive to allow low-income Tennessee residents to go into debt in order to build credit. However, it is a new type of loan that is being offered in some communities to allow people to establish credit - something that virtually everyone needs in order to buy a home or car, or even rent an apartment.

Many people do not have the income to even qualify for a basic credit card. But some new types of loans allow people to borrow money - but not spend it. The money - several hundred dollars or so - is put into a locked savings account. It sits there until the loan is paid off. Some loans allow the account to grow. For example, if a person pays $25 toward the debt, that money may be put into the savings account. So it is possible for $300 to turn into $600 by the end of the loan terms. In addition, the person's credit score will increase dramatically - in many cases, close to the United States average of 689.

Those without credit - or who have a low credit score - pay more for everything. Even if they have saved up more money than someone with a high credit score, the one with the higher credit almost always wins out.

Credit card debt - within reason - has some benefits. It allows a person to responsibly build credit, making it easier to buy high-cost items. The key is to not drown in debt. Once a person has several thousands of dollars in debt, it can be difficult to recover.

Source: New York Times, "How Credit-Card Debt Can Help the Poor,"Shaila Dewan, Feb. 11, 2014

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