How Times And Views Have Changed

How Times And Views Have Changed

There was a time when to talk of having debts was like openly admitting that you liked to pull the wings off flies. People simply would not confess to having debt, even if it turned out that they did have debts, and quite substantial ones at that. Now, it really doesn’t seem that way. Debt is seen as an accepted hazard and a fact of life by many people – and there have been some good outcomes to that, with many responsible people on lower incomes able to spread the cost of necessary outlays. The problem comes when the debt cannot be managed.

It might be more beneficial for everyone if we started to differentiate more between kinds of debt. Rather than assuming that all debt was bad, if we could all tell the difference between unmanageable and manageable debt, necessary and unnecessary debt, then we would be able to judge when debt was an acceptable step, when it was the best option, and put together some ideas on how to stop people getting into damaging, excessive debts of the kind which can blight a life.

It would not be true to say that the present-day prevailing view on debt was the right one. Nor would it be right to say that the old-fashioned attitude was strictly fair or correct. What we can hopefully all agree on is that debt awareness is more important than anything, and that we should all learn to apply the common sense that none of us are shy of handing out to everyone else.

What Does Debt Mean To You?

The very word “debt” is enough to bring fear to a great number of people, suggesting as it does a range of worries from being unable to make mortgage payments, keep a car on the road, take holidays and even, for some people, to eat three good meals daily. There are of course several different kinds of debt, and it is not necessarily a given that debt will always lead to financial meltdown. The key thing to remember is that debt should always be manageable. There are many of us who have a certain amount of debt, but make sure that it is covered. Taking out debt to pay for something you want and assuming that “something will come along” to pay for it is not a plan that will work.

Managed debt can be a life saver, and people who know how to manage their debt give themselves a lot more options than those who do not. There are ways and means of making sure that your financial position is protected, but being able to count on those ways and means demands that you will be ready to pay close attention to your incomings and outgoings at all times. If you are assured of money being available to make payments on a credit arrangement – for the duration of that arrangement and not just for the foreseeable future – then you are not doing yourself any harm by borrowing. It is just a way of spreading the cost.

But for too many people, the issue of debt is that it is unmanageable, or manageable up to a point. But what if you lose your job or your hours are cut back? What is you or a family member falls ill? Then it stops being manageable, and you need an alternative.

How Debt Can Ruin Your Life

Most of us, at one time or another, have looked at an item and thought “That would make my life so much better – now if only I had the money to buy it”. Credit is the solution used by many people in this dilemma. In many ways, it is as though a bank were saying to the person “No problem, you can have that item. I’ll pay for it now, and you can pay me back over time”. In this, the bank is acting as the generous friend who reassures you that you can have what you want without needing to worry unduly about how you’re paying for it. The major problem with that is that banks need to make their money back, and are not your friends.

A friend would, in most cases, be willing to forego some of the money if you really couldn’t pay it back. They would understand your good intentions and would know that some day you would do them a favor for which they would be thankful. Banks do not – and cannot – operate in this way, as their business relies on being strict with how they control credit. They cannot afford to be your friend. So when you borrow money from a bank and cannot pay it back, suddenly you are on your own.

For this reason it makes sense to be very careful when borrowing from a bank. It really makes sense to be careful with any borrowing – no-one likes letting a friend down. But when banks are involved, being in debt can be a very lonely experience.

The Risks of Living On Credit

It is always difficult to live frugally when all around you seem to have more possessions, more money and simply more fun. There are few people in the world who do not enjoy having new, enjoyable possessions which can make life easier, more varied and overall just more fun. The risk of seeing life in this way is that it can make people go to extreme lengths to keep up. No small amount of the financial turmoil that is seen on an individual basis very frequently happens for this very reason. When people around you always seem to have the best clothes and gadgets, and be enjoying life more, there is a real chance that they are living beyond their real means.

Spending money is fine, as long as there is money there to spend. Otherwise, it needs to be considered long and hard in the context of your situation. If you are making a purchase on a credit card, ask yourself if you can afford to make the payment that is required at the end of the month (or whenever your payment cycle places the due date). If it is a matter of making the purchase now and worrying about how you will pay for it later, it is really a good idea to refrain.

Think of it like this: credit cards make it easier to spend money, but that money is not technically yours. Spending money that you need to pay back, and not having the means to pay it back, is like trying to outrun a hungry lion. The credit card may act as a vehicle to escape the lion, but sooner or later you run out of fuel.

Cash vs Credit – The Battle Lines Are Drawn

It is a certain fact that where credit used to be the preserve of a few people with major disposable income, now loans and credit cards are common parts of life for most sections of society. This has led to situations where it is assumed that the less well-off are the people who like to take out credit and get into difficulties, believing that society cannot do anything about it. However, it seems clear now that even billionaire and trillionaire banks have been just as slack in their credit control as anyone else. It is more a question of who applies common sense in their banking practices than anything else.

An increasing number of people who have seen friends, family or anyone else trying to use credit to run their finances and making a mess of it are now deciding that credit is not for them. In times of plenty, a credit card can be a convenience tool to make purchases at short notice, safe in the knowledge that the money to pay it off will be there when needed. In the present day, however, there is a lot less certainty about this and people are unwilling to take the risks attached to credit.

By making sure that you only use cash to make the purchases you need to make, you can guarantee that you only use money that is available here and now. It may not be as much fun sometimes, but it allows you to keep a close eye on your finances.

Why Do We Use Credit?

When someone falls into debt due to a history of using credit there is invariably a rush of questions as to why they saw fit to borrow so much in the first place. Part of the reason is the way that credit has been sold by the banks – if you apply today you could have that new car tomorrow – and part is due to the fact that people always feel more secure the more money they have. The word “credit” has always been associated with positive things, but in a financial sense it actually has more to do with debt than with anything totally positive. The overall issue is that “credit” actually relates to debt.

If “credit” was always called “debt” it is likely that fewer people would be as willing as many of us currently are to take large amounts of it. When we use a credit card, we are not using our own money, but actually borrowing from a bank to pay for something. Sometimes this is unavoidable, or at least the “best” option – in the case of medical treatment, for example, or unavoidable travel. As often as not, though, it is for something we want, not something we need.

Being credit aware is more important now than ever. Banks, who once were happy to give credit in the knowledge that they would get it back with interest, are now a great deal more careful in terms of who they give money to. Extending the terms of your credit may not be as easy an option now. It is wise to think before taking the plunge.

Your Credit Rating And What It Affects

Any time you take out credit for the purposes of making a purchase, or for any other reason in fact, this information goes onto a file which is held by any one (or more) of a number of credit monitoring agencies in your country. Any payments you make (or miss) and any changes to your account are recorded on this file. Depending on the agency, your credit rating is judged on the basis of the information held on this file. Any payments you make are given a positive score (the higher the payment, the better the score) and any you miss are given a negative score.

The scores are tallied into an overall score marking your credit history, and your worthiness for further credit. This is then consulted by any company or lender who wishes to appraise your application for credit. If you have a history of missing payments, then the low score you receive will make it less likely you can secure credit for a further purchase. A history of making payments on time and in full will make it more likely.

Of course, there are other things taken into account. Your monthly income is also important, as even people who are very responsible when it comes to making the payments expected of them will struggle when it comes to paying a monthly payment that makes up a significant portion of their monthly income. Over commitment is a major reason why people fall into serious debt, so pay attention to your commitments.

A Life Of Debt

Since about a decade ago, the rise in numbers of people using credit to fund larger purchases has been steep. We have definitely become more impatient as a society, and this has meant that where we see an opportunity to acquire expensive consumer items we are unlikely to spurn that opportunity. Due to the rise in availability of credit in the early part of this century, this has seen people taking out loans or putting expensive purchases on a credit card, to spread the cost over time. But is it a good thing? Certainly, none of us are complaining when we get home with our big screen TV or new car, but what about when the payments start?

There are people who pay off their credit card balance in full when they receive their statement for the month, and in doing so build an excellent credit rating. By doing this they also avoid the dangers of interest and late payment fees, and keep the card clear for purchases which need to be made at short notice. It is entirely reasonable to use credit in this way, but the big risk is when you are making only the monthly payment each month on the balance of your card. Doing this, it will take forever to pay it off. If you are using credit to pay for continuing, necessary costs, then you are likely to run into problems somewhere along the way. Work out a budget and live by it – it may be tight, but you’ll never have to hide when the doorbell rings.