Cash and the use of cash money is slowly disappearing in the USA. It is predicted that before long, our nation will be a "cashless" society. With all the variations of charge, credit, and stored value cards that exist now, it is true that cash is a disappearing form of payment. But credit is not disappearing. In fact it is growing exponentially. In the U.S., the number of major credit cards in use increased from 213 million in 1990 to 566.8 million by the beginning of 2005. The dollar amount of debt owed by American consumers grew from $154 billion in 1990 to $805.5 billion by the end of 2005. And when it comes to credit, that old cliché, "there's no such thing as a free lunch," could not be more true. Credit is not free.
Credit is, however, a very valuable consumer resource, and good credit is essential to buying a new home, financing a business venture, or funding higher education. Abused or overused credit, on the other hand, can threaten your budget and your good name before you know what you did to incur the penalties that can jack up your costs to obscene levels. So learning - and understanding - the basics of getting and keeping good credit is yet another critical ground rule for becoming competent at financial management.
From frills to necessities, the uses of credit are virtually limitless, and its wide availability for some is an all-too-inviting trap. The friendly smile of the salesclerk who asks, "Debit or credit?" and the ease with which many of us answer "credit" might well be numbing some of us to the real financial impact of that deceptively simple question. If you are among those answering "credit," you are not alone as the numbers are plainly showing.
In addition, the marketplace gives a certain cachet to credit, and credit card companies can be brutally competitive. To get us to spend more, we are urged to use our cards for everything from cash advances, to incidental expenses, to more luxury purchases which we might not consider buying if we had to pay cash. We are invited to earn miles, shopping points, and free dinners, if we will only spend more on credit.
These messages, however, come from the very companies who benefit from our every purchase or cash advance transaction. These companies have their profit margins, not our financial well-being, in mind as they extol the virtues of buying on credit. It is easy to forget that the purchasing ease of credit is seductively convenient, and when we pay on credit, we are really creating debt, debt, debt. Sometimes we remember this too late, and our debt load has climbed to heights we did not anticipate. Worse, debt is expensive, and once incurred, debt can become difficult to repay.
On the upside, credit is convenient and even necessary.Many of us keep a credit card in our wallets for necessary purchases and in case of an emergency, like a tire blowout that needs to be repaired immediately when we don't have the cash. Credit cards can save money on your purchases by allowing you to be spontaneous and take advantage of special sales, but sale balances should be paid off quickly before the advantage of the sale is lost through added interest and fees.
Planned credit is necessary to good financial health. In the form of a positive credit rating, it enables you to acquire assets. It communicates to lenders, insurance companies, and even to prospective employers that you are a good credit risk and that your personal affairs are in order.When you apply for the mortgage on your first (or next) home, your lender will not have to guess whether or not your payments will be made on time - you have a track record.When you apply for insurance on your home or personal belongings, your credit standing tells companies that you are not likely to try to cheat the system. And your prospective employer who relies on a credit report is assured that you will not lose time at work, at least dodging creditors, and that you are likely to keep your promises in the workplace as you have done with your creditors. Those who have never used credit do not have this history and must build it if they want the benefits that good credit bestows.
On the downside, available credit encourages impulse purchases, and this is the problem that everyone is now facing. With costs and rates climbing, accumulated unplanned debt can be a significant drain on personal resources, making it extremely difficult - if not impossible - to build and sustain savings and assets. When you are savvy about credit, you control your financial destiny instead of being "used" by credit companies. You are exhibiting these essential qualities of competent personal financial managers:
The trick, then, is not to avoid having credit cards, but to make judicious use of them. But before you use your card for any reason, ask yourself if the use you are considering is something that will benefit you more than the debt may hurt you.
All of your purchases, especially your larger ones, should be made through the lens of your Life Values Profile. Think through your purchase decisions instead of buying on credit just because the card is there. Many people rationalize their impulse buying to cover up the truth that they could easily have done without the item. If this happens to you, try getting into the habit of thinking through to the consequences of your purchases: "more stuff, higher debt, tougher to meet monthly payments," before you start planning your next trip to the mall. And try this: If your credit card is burning a hole in your pocket, then turn that old familiar American Express commercial on its head, and "Do leave home without it!"
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Note: This article was sent to us by: Dan J. Carter at 03082010
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