Knowing When to Cut the Credit Line
A recent article found through Yahoo, entitled Five Strategies for Surviving Tough Times, details a no-nonsense approach to getting finances under control. Why can’t we buy with money we don’t have? The money we spend, and don’t have, makes someone else rich off our interest. Why not save until we can afford whatever it is we need? At what point do we turn away from credit card debt and stake out our own future paved upon our savings?
The article describes the current credit perception as such:
In our credit crazy world, amassing debt no longer carries a social stigma. Everybody has a car payment, a house payment and credit card payments. Well, remember what your mother said about everybody jumping off of a bridge? Just because everybody is doing it, doesn’t make it a good idea. Buying something you can’t afford now, especially when the economy is unsettled, can double the pain of paying later. For example, if you purchase a $450,000 home today and the market goes into a slump and devalues your home by $200,000, you will be paying the bank twice what the home has come to be worth. Just because it was easy to get the credit to buy that home, doesn’t mean it was the right time for you to buy in. [Source: Investopedia.com]
At some point in our culture, we took common savings know-how and replaced it with the credit card. The predatory lending processes that occur have come back to haunt both consumers and the creditors. So what can we do to stymie the flow of money out our door? The obvious answer — cut up the credit cards. This doesn’t mean we close the accounts. That could be bad for our credit score. What we want to do is pay with cash, not with an interest bearing credit card, so remove the impulse by destroying the card.
There are exceptions. Many people can save enough money to pay down credit cards in a month or two. For those, I applaud you. For the others, like me, we need to learn to use a budget and save towards goals.
Let’s face it — we live in a instant gratification society. We need the newest, latest, greatest the moment it comes on the market. However, with everything the price will drop while we save the money we need to buy the item. For instance, a car loses 15 - 20% of its value each year. So if you must have the newest Ford Mustang Convertible and you paid $28,000 for it brand new, then the same car would be worth $23,800 if it lost 15% of its value and $22,200 if it lost 20%. You can actually buy a car a year or two old and save that amount of money too!
Traditionally houses tend to appreciate in value. The housing market in most of the US have cooled. So would now be a good time to buy? It depends. You might find a great deal from someone looking to get out from underneath a mortgage, or you might wait and find the prices have dropped even further in another year.
So the right move on big purchases might be to wait a while or to save enough to make a great downpayment. When we steer clear of credit cards and huge debts, we can save more money towards what we need. It’s a challenge, and requires a new way of seeing our finances.
Comment Discussion Questions
- How do you use credit cards? Do you put everything on them or only big purchases?
- How many cards do you own?
