It’s doubtful that you need to be told about the consumer debt problems of the United States and other Westernized nations. Even the governments (also made up of human beings, contrary to so many surface appearances) seem to be unable to reign in profligate spending. So why can’t individuals and communities solve this massive debt problem? Well, it’s easy to turn lenders and their marketing departments into scapegoats. “Those wicked credit card companies just kept giving me more tantalizing offers until I couldn’t resist…”But lenders and marketers aren’t the problem. Consumers are.
How so? It’s because consumers aren’t being forced at gunpoint to take out loans. We have become a vast society of borrowers who want to live above their means and never get things fully paid off as a result. We have mugs that say “Charge It! That way, you’ll never have to pay for it!” (Yes, those are real.)Lenders Fulfill a Real Need Few are the human beings who have never needed to borrow money. We come across things that are very important to have — vehicles, homes, electricity, etc. — and we may be short on our own cash for buying them. We’ve had some hard luck, we took some risks that ended up on the wrong flip-side, we’re just getting started with building personal wealth through work, and we’re students. By all means, lenders are good guys who want to help you out.
Lenders also have to make profits, just as your body needs to make red and white blood cells to live and to be healthy. Lenders make profits by charging you interest on loans, of course. This means for you that you have to pay back more money than you actually borrow. Hey, there’s no such thing as a (totally) free lunch.
So lenders want to lend you money, and lenders want to help you out in your financial situation. There’s no question of these things. The questions that you have to answer for yourself are: “Am I going to be able to afford the interest payments while making principal payments on time? “Do I really need to put myself into more debt at this time? “When Should You Borrow from A Lender (This Includes Carrying a Credit Card Balance)? The number one rule of personal finance is: never borrow unless you have to.
If you have pretty good (or better) credit, it’s easy to fall into the temptation to borrow money from a lender. There’s just so much tempting stuff to acquire and do! Credit cards make borrowing money seem like magic — quick and easy money that you didn’t have to toil away to get!
But there’s something to be said for delaying gratification (consuming). The greatest advantage of delaying gratification now is that you drastically diminish your risk of falling into ruin later on. And it’s far easier to delay gratification now than it is to rebuild yourself from ruin later, too.
Therefore, borrowing should always be about need. Borrowing isn’t about desire. Desires should be met with disposable income that you earned and that you don’t owe back to or owe interest on to anyone at all.
Sometimes desire and need are intertwined, it’s true. But borrowing is specifically about meeting a need.
Needs may be things like: An affordable place to live that you actually own and are in control of.
A reliable vehicle for going to work, getting out to the grocery store, etc.
Getting major repairs made to a home, vehicles, business machinery, etc.
Expanding or making improvements to your home or office. (This is often about desire, but you spend the majority of your waking life in these places and it’s important to your health that you’re happy and satisfied in these places.)Education for you, your domestic partner, or your children.
Financing a beautiful Xmas or other important holiday for your family, especially if you have children. (Please note that this is for your family, not for your personal indulgence.)Business expenses including expansion.
Healthier food for your household.
Paying utilities so that you avoid service disruption.
Medical expense bills not covered by your insurance.
Drawing the Bottom Line If you can possibly afford to pay for it out of your own money, do it? If it’s a luxury item or some expensive vacation and you don’t have the money for it now, you just don’t buy it or take that vacation.
You see, the paradox about borrowing is that it should be avoided if it’s at all possible. In our debt-tempting society, some proven ways of avoiding the need to borrow include: Get into a disciplined investment plan where you put X amount of money into a mutual fund (for example), like clockwork, each month. This invested money not only has the potential to make you even more money, it prevents you from being tempted to spend it with it just sitting around.
Make efforts to lead a healthier lifestyle so that you can lower your medical or health care costs.
Take good care of your vehicles, appliances, personal computers, etc. so that they last longer and need less maintenance.
Don’t be shy about clipping coupons! Coupons are money.
Discover merchants where you can constantly find lower prices or special offers on goods and services that you desire or need. Some very fine examples of these are Google Offers, LivingSocial, Michael’s, Target, and Costco.
If you want more out of life, do your utmost to figure out how you can increase your income and personal wealth instead of borrowing. Focus on making more instead of taking more (that has to be paid back with interest). The Internet is replete with ideas and opportunities to work from home, start up your own online gig, or further your education.
One final note: the less you need to borrow and the faster you can pay off your loans, the better your credit rating — so that when you do need to borrow, you get lower interest rates and better terms.