Credit used properly is a good thing. Without credit I would not now own my house. If I had waited until I had enough cash in the bank to buy my land and build my house I would most likely still be renting today. I must stress at this point however that credit has to be used sensibly.
Despite what people think credit is very ,very easy to obtain. Unfortunately in the majority of cases credit is far too easy to obtain. Money lenders make their money by lending, not by retaining money. Consider if you are paying a credit card debt off successfully and your limit is one thousand dollars ,$1000. Ask yourself how many letters have you received from your credit card company inviting you to increase your limit. For that matter ask yourself how many offers you have received inviting you to change from your existing credit card company to another credit card company offering a huge increase in limit with a very low or non existent introductory rate of interest. How many of you have succumbed to the invitation to increase your limit and change credit card companies simply to take advantage of a introductory low interest rate? Once you are unable to clear your entire month’s debt you place yourself on that financial treadmill of endless debt.
I expect to hear groans from you readers if I go back to the dark ages but really ,back when I was a young man ,you only borrowed from a bank to buy/build your house. You made do with secondhand furniture,white goods and in fact anything for which you could not pay cash. You had to be patient. Spare cash was hard to come by and you valued the item if you were able to buy it brand new.Once you bought the item you expected it to be built to last .
The second most bought item after the house was a car. Again you tried to save to pay cash for the car however there were finance companies that provided you with credit if you simply had to have a car . If you defaulted on the car payment then you lost your car. If you defaulted on your mortgage then you lost your house. At that, dear readers ,was the extent of credit back when I was young enterprising married man full of hope for the future. Life was simple.Mortgage for your house purchase and hire purchase for your car.
It wasn’t too long before the banks decided that there was money to be made by providing credit outside just lending for housing. They realized that if they held the mortgage over a person’s house then there was little risk in providing unsecured lending. Some bright spark , bless his little soul , reasoned that rather than supply a person with a loan similar to hire purchase, there was stacks of profit to be made if the credit was revolving. I can imagine his delight in dreaming up the credit card with a debt that in many cases would be perpetual. Just imagine the profit to be obtained from a loan being granted that very rarely ever gets paid off. Naturally the interest rate would have to be high. Being a banker, the bright spark could see that some people would commit financial disaster but the profit from the high interest rate could easily absorb any loss.
At first the credit card was met with suspicion. Generations of people who were used to paying cash had mixed reactions at being able to walk into a shop, see something brand new that they needed and pay for it with a credit card. The financial Pandora’s box of instant gratification for buying brand new items very rapidly caught on. The financial genie of the credit card provided everyone with their instant wish with one or two small provisos. Pay your minimum payment each month and stay within your limit. People did not have to wait and save for things anymore. If they saw something they wanted they bought it. There were smiles everywhere and people started to demand instant gratification. Old ideas of credit were abandoned.
So what do we have today? We have items that have a very short life span before becoming obsolete. We have a society who cannot distinguish between a genuine need for something and a want for something. We have a society who wants the best of everything now and is not prepared to wait for anything or anybody. In short we have a society who is up to its neck in debt on credit card struggling to exist from one day to the next. Despite the fact that the amount of debt is at an all time high there are still institutions offering to extend people’s credit card limits. You have the ludicrous situation where some people use one credit card to make the minimum payment on three of four other credit card debts.
Despite all the doom and gloom I don’t think credit will lead to the downfall of society. I do not advocate the abolition of credit cards. People are resourceful and will have to learn to deal with debt. No doubt that there will be a few “financial suicides” before society corrects itself but I reiterate that credit used properly is a good thing. Most people will reach a limit where they can no longer spend and they will have to stop. It will be a very painful lesson to learn how to use credit wisely.
What is needed urgently is education of the young in sensible use of credit. Credit to the uneducated is like leaving a child alone in candy store with a credit card to buy whatever the child wants but not necessarily needs. Education in credit use would see that child selecting only just what he needs from the candy store instead of becoming a glutton . The child’s downfall would only happen if he didn’t know how or when to stop eating the candy.