The Responsible Use of Credit

by Neil on January 26, 2009

A few weeks ago I wrote a post containing some predictions for 2009. Today I want to examine one of those predictions in further detail.

This was one of the predictions from a few weeks ago:

I predict that if you stop living off credit you will reduce your worry over paying bills, and will be better off financially.

So let’s take a deeper look into this prediction.
Working in retail banking requires that I keep informed as to market conditions and interest rates. I regularly read the business section of at least two papers following the top stories and I consider how they relate to my job.

One of the stories coming out of the news over the past few weeks is that the banks aren’t lending people money. I find this funny for several reasons. First, we are lending money to qualified individuals and businesses. Second, it’s the desire to borrow money to purchase things we can’t afford, aka living on credit, that has helped put us in this financial mess.

What’s that? You thought it was the greed of the big banks that started this off? Well your partially right, but individuals who borrowed money to buy things they couldn’t afford with cash are also partially to blame. If you’re having a tough time with accepting some of this responsibility read this post.

Now let’s go back to my prediction. I predicted that if you stopped living off of credit, you would worry less about the bills you have to pay. Why is that? Because you won’t have a credit card bill if you aren’t using your credit card.

The media loves to target the banks and accuse them of not lending to consumers. What the media should be doing is targeting the consumers and pointing out that irresponsible use of credit is not in any one’s best interest. The problem is the media can’t do this because they would then alienate their audience. Instead they urge the continuance of irresponsible spending and chastise the banks for not bailing the consumer out.

That’s my take on things. I stand by my prediction that if you stop using credit you’ll live a stress free life and you’ll have more money saved up. Less interest paid to the banks or credit card companies is more money in your account and that’s the way it should be. So next time you need to buy something, pay in full with cash. If you can’t afford to do that, ask yourself if you really need the new TV, blu-ray player, Wii, or whatever else your neighbour has that you want.

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cave2626 01.26.09 at 9:53 am

Good advice, Neil. I’ve found that if you must use a credit card then do your homework and find one that gives you something back. Most banks have cards that offer air miles, points for merchandise or even cash back. If you’re going to be using a credit card with any regularity then why not take advantage of a bonus plan that will work for you.

Just remember to look for a reward that makes sense for you and your lifestyle. If you don’t travel and can’t afford to take a big vacation, then air miles probably aren’t your best reward option. My person recommendation is to look for a card that offers cash back (often referred to as a dividend card). A good alternative is a card that offers free groceries (which is what my wife has). Free groceries are something that everyone can use regardless of your lifestyle.

Tess 01.26.09 at 10:03 am

This is not a prediction it’s simple advice. However simple doesn’t mean easy! It’s also truth because truth never changes and spending money one doesn’t have will never be good.

The only way anyone should have a credit card is if they can pay it off every month.

I also agree that everyone needs to take 100% responsibility for what has gone wrong. If we refuse to do so we refuse to learn and will continue to repeat the same mistakes.

Tess’s last blog post..40 Simple Ways to Save Money

Neil 01.26.09 at 10:52 pm

Derek – Some great points, but you do need to be careful. Some cards have annual fees and if you don’t use the card enough the Credit Card company comes out ahead. Also, you want to make sure you aren’t carrying large balances forward or your savings in groceries or cash back are eaten up in interest costs.

Tess – It is simple advice, but many people just aren’t able to follow it.

Barbara Swafford 01.27.09 at 4:02 am

Hi Neil – I agree. Before we buy we should ask ourselves if we REALLY need it. More often than not the answer will be no. It’s unfortunate the recession has so many turned upside down. Our only hope is when things turn back around, we’ll all have learned what not to do…next time.

Barbara Swafford’s last blog post..How To Lose Blog Visitors

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