Use Credit Wisely
Be Smart in Handling Money and Let Needs Govern over Wants
By Leland E Pulley
Most people recognize that credit is something that plays an important role in their lives. They want to establish a good credit rating in order to get bank loans for things like a car, a mortgage to buy a home, or money to start a business. They also want credit cards to purchase all the products and services they use. Credit allows consumer spending by all of us to be much higher than it would be without the use of credit. In this sense, credit can be a very positive thing and helpful in obtaining what we want.
For many years it has been easy to obtain credit. Easy credit leads to more consumer spending, which accounts for about two-thirds of our national economy. One result of this easier or expanded credit is very visible. As you drive down the road, what do you see in the garages of many homes? An empty garage so cars can park in it, or a garage full of lots of junk. When you actually go inside the homes of people, are they spacious and uncluttered, or full of too many items? Have you noticed the large number of businesses today that offer storage units? What is put in these units other than additional material goods that we are not using or in many cases do not need. How did we get along in the past without so many storage units? The answer is we did not buy as many things per person, and fewer families had toys like campers and boats that needed to be stored someplace. Related to all our stuff is the growing used items or secondhand business. These organizations or businesses are doing better than ever before. It is good that products are being recycled from the original buyer to a secondhand buyer, but it also represents just how much we are buying and then giving up without wearing something out or waiting until it breaks down.
Besides easy credit, the credit data on you is more widely available than ever before. This is true not only between banks and credit card companies, but businesses who want to sell you items. You become part of a targeted audience in a marketing campaign trying to get you buy more now and pay for it in the future. If you have decent credit, you receive many offers for credit cards and bank loans. This is besides the offers by local merchants to buy now and have no payments for many months. Resist these offers as much as you can. Accept only a limited number of them which offer you the best deal. Look for offers with a fixed interest rate and not a variable one.
Credit cards deserve special attention. Their rules are revised over a period of time to work in favor of the credit card company. They are almost an unregulated business in my country, the United States. This is only one reason why the interest rates and fees are much higher today than many years ago. Their goal for you is to have an outstanding balance that you do not pay off in a 30-day period. The balance continues to the next 30-day period and hopefully you will buy other things which add to your balance. Over the months your balance gets bigger, and to accommodate you, they increase your credit line limit or the maximum amount you can charge. What you end up with ultimately is a larger monthly bill, at a higher rate of interest, for a credit card that is never paid off. Over the years the amount of interest you pay compared to principal is astounding.
A few years ago, there were negative credit trends relative to housing. One was the use of no money down mortgages for home purchases. Also, low interest adjustable-rate mortgages became popular. Eventually, the monthly payment for these types of mortgages must increase. This is where home buyers get into problems. If there are declines in home values, the problem is even worse. Related to these mortgage practices has been the expanded use of equity loans on the amount of money a person has in a home. What you end up with is too many homeowners with little equity in their homes. This makes it easier to default on a loan or simply walk away from a house.
In general, easy credit encourages us to buy not only what we need, but everything we want at the time we desire it. The problem with all this comes when you have to pay the bill. Assuming you remain healthy, continue to have your job or a source of income, and your house maintains its value; then at least you have a chance to keep up with your debts which accumulated through a lot of credit purchases or loans. However, if things began to go wrong in the economy or workplace or real estate market, problems could occur that affect you and your checkbook. It is easy to find yourself in a position without sufficient funds to pay all your bills. The number of people in this situation who miss payments on credit cards, equity credit lines, mortgages, and car loans go up.
The first thing each of us must realize is we do not know our future. Therefore, we should strive to live within our means and not overspend. Something could happen that would lower our income and/or devalue our property and put us in a financial bind. For this reason, we should have some savings and definitely limit the use of credit for only things that we need and not for everything we want. This calls for sacrifice or going without for a period of time. Wait until you can pay for something with part cash and part credit, or merely waiting until you can pay for it by cash. In some cases, you simply should go without.
Strive to let credit help you get the things you really need today, rather than the things you want. A good example is obtaining college loans to get an education in order to earn a higher income. This is using credit wisely because you are putting yourself in a position eventually to earn more money and get a good return on the money you borrowed. However, buying new clothes every year to keep up with the latest fashions is not necessary. Charging these clothes and having a continual bill or a larger bill from year to year for clothing is not wise use of credit. The same thing goes for a car. You need transportation, but do you need a new car, or would an older one be satisfactory? These types of decisions made by each of us, will influence over time how we use credit and how much it affects our life in a positive or negative way. It is always best to be conservative in borrowing money and very responsible and timely in paying it back.
Establish and maintain a good credit rating. You can easily obtain free copies of your credit report from more than one credit agency. Check it for errors and omissions and then correct the report so your score will be raised. Another way to raise your score is by making regular payments on time over the years. A higher credit score allows you to get money faster, easier, and at a lower rate of interest. This will save you money over a period of time. You will have more credit options and be able to take advantage of good deals or real opportunities when they come your way.
Always remember this reality in the money game today. It is hard to get a loan or mortgage just because you know somebody, or they trust you. You are viewed as a consumer with a credit rating, an income, a list of current expenses, and a financial history. Presume that a computer will initially judge you, not a human being who knows you, or cares about you, or would help you if he could. This is a better way of looking at obtaining credit. If you meet all the basic criteria, the computer says yes, and the loan or mortgage goes through. If you do not, the computer says no and usually your request is rejected. It may say you can get money, but not on very favorable terms for you or the terms that you originally requested. This is not the best deal either. In some cases, the financial institution employee may have some latitude to influence the final decision and terms of the loan in your favor, but do not count on this. You should not be naive about what or who you are dealing with in the financial world today. That computer could care less about how much more you deserve help than the guy who lives across the street from you. So, strive to put everything in your favor and then you will find that the financial world will work much more for you and give you what you want.
We should all strive to control spending, rely less on easy credit, and avoid the accumulation of so much junk. There will be less pressure on you for obtaining money both now and in the future. There will be less chance of missing payments or defaulting on a loan. There will be less possibility that you will declare bankruptcy, which is becoming more common in recent years, even though legislation has put more restrictions on this.
To avoid problems, let the credit available to you affect you and your future in reasonable ways. Weigh out carefully your needs versus wants, and the number of risks you can take in a responsible manner on future earnings and income. Then carefully utilize credit in a wise manner. If something does come up in the future that is unexpected and affects you in a negative way financially, be prepared to cut back your expenses or lower your standard of living for a period of time to put your income more in harmony with your expenses. In other words, sacrifice and go without a little to recover from financial problems until you can get back on your feet with your money. Some people will simply not go without nor cut back. They will walk away from a home, and give back a car, and even declare bankruptcy.
Hopefully, you will be the individual whose life is not adversely affected by poor credit but served by good credit. You understand the rules of the credit game and use them to get what you need more than what you want. Credit is a tool, and you are very skilled in using it. You are wise and know how to use credit so as not to be trapped in the future by unwise decisions today. You review your credit report periodically and keep on top of your credit situation. In these ways you are able to stay ahead of the game and get the most for your dollar.
For encouragement, let us all recognize that over the years and decades of adulthood many people have credit problems for various reasons. Some are their own fault and others due to situations and circumstances beyond their control. Fortunately, there are ways to overcome credit and debt problems. If you have these, seek counsel and advice. One popular solution today is debt consolidation. Several types of approaches are available. This can change the interest rate and time period to pay back the money you owe. Just remember, you still have a debt to pay.
Over time, slowly but surely work out of your financial situation in order to be freer in the future than in the past. Remember, maintain self-worth and dignity consistently over time. You are more important than a mere credit problem. Be strong and continue to do your best. Years after a credit event, you will remember it as an obstacle you overcame. If it was handled wisely, you strengthened yourself in the process.
Good luck in seeking credit and using it wisely.
If you enjoyed this article, you can find more content like this under the Topic Categories link. We also look forward to our readers input, so please leave a “like” or a comment.