Credit: Friend or Foe?

In the Beginning . . .
For the first 40 years of my life, I operated on the principle of if I didn’t have the money, I didn’t make the purchase. In doing so, I was described as being “behind the times” because while most people were making a regular practice of using credit, I was still living with the antiquated theory of saving money before purchasing any items.

Then lo and behold, I began working at American Express, an extraordinary company that showered extravagance on its employees and customers. They were paying me a good salary, flying me all over the country to attend meetings while putting me up in the finest hotels, and all of this was completely paid for by them. Soon after I was hired, they offered me my first credit card with no strings attached. In other words, there was no jumping through hoops like other credit card companies required because I was an employee. After a quick background check, the credit card was mine!

Living in the Lap of Luxury!
A few years later, Capital One came into my life. They too offered easy access and I soon received not one, but two more credit cards. Being the prudent person that I am, I started out using my credit cards with care by being selective about my purchases and making sure I paid all my bills on time every month. As a reward for my responsible management, the credit card companies increased my credit limits to a total of approximately $30,000 between the three cards. WOW! Talk about a boost to the ego! Never in all my born days did I ever have that amount of money dangled in front of me all at once.

By this time, my credit score was excellent and I was able to purchase my first home. With that first home, I became eligible for refinancing (which the lenders happily granted and that meant more money to put into my bank account!), and an additional $45,000 in an approved line of credit. Well, I have to say that this was too much for the kid! With a great job and close to $100,000 in credit at my fingertips, I lost my mind and decided to have my entire home remodeled, even adding an extra room. And why not? I was flying higher than the eagles in the sky, accompanied by a feeling that the world was mine and nothing was off limits. Yes, I greedily took everything that was offered to me and went on an elaborate spending spree. It never occurred to me that I was spending money I didn’t yet have because as far as I could see, I had a superb job and this state of financial bliss would go on forever.

Time for the Rude Awakening
Unfortunately, about a year after completing the remodeling, the tables turned on me. I was informed by my manager that my salary would be decreased and the cut amounted to almost half the salary I’d become accustomed to receiving. I turned to my retirement account hoping that extracting money from there would help tide me over until I could find a way to recoup the money I’d lost in salary. However, things went from bad to worse when I was laid off about a year later. All of these unpleasant surprises were the results of the economic downturn that caused so many businesses to plummet financially, forcing them to make considerable cuts and layoffs in order to survive. I certainly hadn’t expected anything like this and was at a total loss as to what to do. I was now without a job, my retirement fund was depleted . . . and I was buried under unpaid credit card bills.

I was beginning to see credit in a completely different light and I had to ask myself: is credit a friend or a foe? My experience has taught me that credit can be a friend only if you see it for what it truly is: credit. One of the facts I had to come to terms with is credit is not free and clear money – it has to be repaid. Therefore, the first lesson is do not purchase anything that can’t be completely paid back in the immediate future. Making minimum payments stretches out the length of time it takes to repay and this adds a boat load of interest payments and fees to the bill. While this makes the credit card companies and lenders happy, consumers end up paying back a lot more money than they originally borrowed. This means we should use credit with great care and consideration making it a point to pay down balances to zero as soon and as often as possible before purchasing more merchandise or services. Just because credit card companies are willing to approve exorbitant credit card limits doesn’t mean that we should spend recklessly or exhaust that limit because down the road, there’s no guarantee that we’ll have that money to pay back.

A Lesson Well Learned
I allowed myself to get caught up in the atmosphere of splendor and grandeur that my job furnished and this factor, coupled with the fact that the credit card companies bombarded me with ridiculously high credit card limits, influenced me to the point that I developed the false sense of security of being in an affluent position that I hadn’t really achieved.

Realistically speaking, however, unforeseen expenses do occur, especially when there are families involved. Handling emergencies and other important matters is precisely the purpose of credit and if consumers used credit in this fashion, making sure to pay down the balance to zero as soon as possible, there would be fewer financial headaches in the world today. If consumers decide to use credit for other purchases such as for much-needed vacations, the method of saving first can be applied so that again, the bill can then be paid off as soon as possible. However, because many of us have come to see credit as money and have allowed it to become a part of our daily lives so that practically everything is purchased using credit cards, we now find ourselves in situations where we’re being swallowed up financially. It’s no secret. The last couple of years have revealed a lot about our countries economic dilemma. Many people and businesses alike are now facing grave financial predicaments, much of which has happened because we’ve lived on the premise of depending on money we didn’t have: credit.

Conclusion
In actuality, I had the right idea when I lived by the law of save first to make cash purchases later. When operating like this, we avoid receiving those annoying monthly bills in our mailboxes which is a refreshing relief! For the most part, credit is used to purchase the things we feel we need (or want) but don’t currently have the funds for and we make the purchase with the intention of paying for it at a later time. Therein is the problem: everyone knows about the common occurrence of something coming up that prevents us from making those necessary payments when the time comes. This is why we have to be extremely careful about limiting our use of credit.

I agree that credit has proven itself to be a significant benefit on numerous occasions. It’s no doubt that it has played an essential role in establishing successful businesses, as well as setting up families in their homes and helping them through their daily lives. In instances such as this, credit is a friend in need. However, it doesn’t take an Einstein to figure out that something has gone terribly wrong with this process. Irresponsibility, recklessness and misuse by both the consumers, lenders, and the credit card companies is rampant in our society and it has wreaked havoc on the existence of businesses and people alike. In this case, credit is definitely a formidable foe.

Boy, if I ever get out of this mess, rest assured I’ll be happy to go back to my old habits and standards!


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