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Credit - Article 6. WHEN GOOD CREDIT GOES BAD Each of us starts of with "good" credit - each of us begins in a financial position where somebody will be willing to loan us money on the assumption that we'll repay the debt and pay some interest as well. Perhaps it started when you got an advance on your allowance or a friend loaned you $2.00 so you could get a burger with the gang. For me, it happened my first night working at a restaurant - I thought as an employee I got a free meal, so I ordered a steak - only to find out that I got a discount, NOT a freebie, thus my first paycheck was docked the price of the dinner I could not otherwise afford and never again ordered. Later, we receive uninvited credit card solicitations in the mail - it's flattering to think that a big company wants to give us some of their money to use, isn't it? Until the bill comes, that is…. Or, we apply for and receive a student loan to help us handle college - or the local bank helps us buy our first cay. It's all the same - we are assumed to be good credit risks and so we are offered credit. This greatly enhances our opportunities to obtain the education or the material goods we think we "need". Many of us go through our adult lives using credit well - never falling behind in the requisite payments, never using credit frivolously, always paying off debt at the earliest opportunity. And there are a number of perfectly good reasons to take on long-term debt - to pay for an education (so as to increase earnings), to buy a home, to start a business. These types of debt make sense as both investments and tax planning. Credit card or other consumer debt - well, that's a different story. We should only charge consumer items (appliances, electronics, meals, travel, etc.) when we can pay the bill entirely when it comes, for the interest is generally non-deductible and carrying consumer debt means we are not living within our means. For many, however, good credit goes bad. Hundreds of thousands of Americans owe money that they are not repaying. How does this happen:
The situation I most dread seeing, though, is that person or family that has fallen behind because of bad choices - mistakes in judgment - as opposed to unfortunate circumstances. These are the folks who have used credit unwisely, who have chosen to buy things they could not really afford. The interest they pay to credit card companies for consumer items usually ends up being more than the cost of the original purchase itself. The prescription is pretty simple for these people: cut up the credit cards, live on less than they actually earn so the debt can be paid off, abolish "unnecessities" (restaurant meals, cable, premium products, new clothes, gifts) - in other words, the behavior that has failed so miserably must be changed; otherwise, the path leads to bankruptcy - or worse, a lifetime of being chased by creditors, of never getting caught up, of perpetual unease. Credit is a wonderful tool, when wielded by an intelligent consumer. And credit can break a family when in the hands of an immature consumer. |
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