I am trying to find perfect reasons to convince myself to get rid of credit, whose else not? It is expensive, yes? Credit crunch affects. Today I am going to share why I want to use credit at the first place.
There are times when the things that I want are simply beyond my present means. When these things are of a resaleable or durable nature (such as cars, houses or the larger household appliances) it has become usual to take advantage of credit facilities as my chances of ever saving enough to purchase them outright is minimal. In the case of an asset like a house, I can have the use of the item whilst I am paying for it and still gain at the end of the day because the house will have increased in value enough to have justified the amount I have paid in interest for the loan. (Credit of this nature is a kind of loan)
Similarly, when paying for a new car or fridge (which is decreasing in value the longer I have it), I am still likely to end up with an item that will either last us for a good few years after it has been paid for, or which can be traded in as the deposit on my next similar purchase.
The problem with credit today is that it is being used to buy items of a consumable or depreciating nature. In other words, to buy things that either get used up completely or which decrease in value until they are worth nothing (such as clothes, food, or luxury household items).
The effect this has on the economy is to increase inflation (the rate at which things get more expensive each year), which means everyone ends up paying more.
Obviously nowadays there is simply no way for people to attain some of the things they want unless they make use of credit arrangements, but the aim should always be to pay off the item/s as soon as possible to avoid interest charges which inflate the price I really end up paying.
With some credit arrangements, for example those pertaining to the purchase of houses or cars where an intermediary is involved, the institution giving the credit usually insists that I also take out an insurance policy which will guarantee that the outstanding debt is paid if anything happens to I that prevents I from continuing to meet my payments (like death or disability). For other credit arrangements I am familiar with, however, like charge cards and bank credit cards, this kind of insurance is either an optional extra or it is left up to me to make provision. If you died owing money whilst still under age and without insurance to cover my debts, my parents or guardians would be obliged to assume them. That means they would have to pay my debts off for mine.
Still, all things considered, there are ways to make credit work for me if I am disciplined. It is important to treat credit purchases with the same caution and foresight that I would if I was handing over cash on the spot.
An interesting statistic that was quoted in a Personal Finance Management Course I once attended states that on average people who are forced to pay hard cash for their purchases for one month instead of using their cheque book or credit cards spend 45% less than they would under normal circumstances! That is quite a saving and just illustrates how casually we tend to regard credit – almost as if it’s not really our money that we are spending.
