You know why they call it credit, right?

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You know why they call it credit, right?
2 years ago
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The process of loaning someone money is referred to as credit. This is a term used to indicate the borrowing or loaning of money to those consumers who cannot afford to make the purchase with cash.

Instead of worrying whether or not they can afford to make a purchase, consumers are worrying about whether or not their credit limit on their credit card will hold up. Whatever happened to living within your means? Has this become living with everything that you think you want- a sort of keeping up with the Joneses mentality?

Some consumers are spending 125% of their income instead of 100% or less than 100% of their income. Not only will they never be able to save any money with this type of scenario, but also, at that rate, they won't be able to crawl out from underneath that pile of debt either.

The term credit implies that a consumer does not have the money at the time of purchase. In many cases, this is true. In other cases, it is simply easier to use credit and to pay the bill when it arrives. Unfortunately, many consumers are in the first scenario rather than the second. If a person cannot actually afford an item with cash, then why should they purchase it with credit?

With that kind of a strategy playing out on a continual basis, the individual is going to find himself enmeshed in a growing accumulation of debt for a very long time. Even if the individual wants the item more than anything else at the moment, perhaps waiting and staying out of debt would actually be a better idea- at least financially.

Other options besides credit exist for those who are cash strapped and without immediate funds. Perhaps the individual should get a secondary job in order to be able to pay cash for the item. Wouldn't this be a better idea than going into debt?

Perhaps they should simply wait until they can save up for the item if it isn't absolutely necessary that they purchase it. Perhaps they could start to save up for it until they have at least half of the purchase price and then they wouldn't go into so much debt when they do make the purchase. Perhaps they could cut back on their spending in other areas until they save up the full amount of the purchase price.

It is less stigmatizing to owe money for items and services that you need such as medical and dental expenses than it is to owe money for luxury items such as electronics, jewelry, vacations, and cars. Either way, however, the consumer is still adding to an unwieldy level of debt that is not beneficial for his financial health.

While consumers are becoming poorer, lenders are getting in rich due to the exorbitant levels of debt, excessive interest charges, and increasing number of late fees that they collect each month. On the other hand, borrowers are digging themselves in deeper and deeper into debt. Is it possible that the only people gleaning any true benefit from the use of credit are the lenders? It is more likely that everyone is benefiting in some way, but the lenders are benefiting the most financially.

Consumers are enticed into becoming borrowers with tempting offers of cash back rewards, gift certificate bonuses, and free gifts. Lenders want the business that many consumers provide through their spending habits. The rewards that they offer are a small price to pay in exchange for thousands of dollars of credit and the resultant earnings for the lenders.

If consumers want to improve their financial stability, perhaps it is time to get their spending habits back under control. Perhaps it is time to consolidate their debts into something more manageable with lower interest rates, lower monthly payments, and a better chance of financial balance.

By Susan M. Keenan
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