Pay close attention to this post because all of the advice comes from actual experiences! Here are my top 10 reasons why credit is not your friend:
1. Gets You Into Debt: Of course, this goes without saying. While some people may argue there is such a thing as good debt, getting into debt leads to all kinds of problems. I can tell you, money and debt worries are a major source of argument and conflict in a relationship. See #2.
2. Attacks the Fabric of Your Home: Being in a committed relationship is supposed to improve your mental well-being and health. In fact, according to a 2004 study by the Centers for Disease Control and Prevention (CDC), mortality rates were found to be the lowest in married couples. But add the pressures of debt to your relationship and painfully watch the bloom fall of the rose.
3. Makes You Lose Focus of the Big Picture: The small picture is the monthly payment; you can probably afford it, right? The big picture truly is; what’s the total cost? By focusing on the “affordable payment”, you will psych yourself into debt! By focusing on “overall cost”, you will focus on the questions that need to be asked; can I afford this now and do I really need this anyway?
4. Robs Peter to Pay Paul: When you use credit, you’re robbing from your financial future to obtain something now. In return, you get “obligation” which we know, is the act of binding oneself. In this case…to debt!
5. Inhibits Your Resourcefulness: I know this one all too well having gone from having a high 6 figure middle class living to being broke! I use to throw money at a problem, not use credit. But this applies to people who have credit – but not the money too.
Instead of looking at the big picture (#3) you decide you’ll buy a product or service that could solve your issue, whether personal or for business, instead of finding ways to solve those issues without spending any money first. Sound like you? Well I can tell you this use to be me! (This could be a whole post in itself)
6. Makes You an Awful Steward of Your Children’s Future: Say it with me; financial literacy is the key to our children learning how to manage their credit and financial future. If you’re home life is stressful because of money and debt worries, you’ve mortgaged your financial independence to keep up with the Jones’, and you haven’t learned that no one has a greater stake in, or is a better guardian of, your financial security than you – then you’ll be a horrible role model!
Teach them frugality, show them by how you live your life with them, that money is something to be valued! And as Katy Wolk-Stanley says in her blog; “Use it up, wear it out, make it do, or do without”. Pay particular attention to the “do without” part; I have!
7. Blurs the Line Between What is, and What isn’t: What’s the difference between credit and cash? Credit is money you think you have and cash is the actual margin your life works within. Got that? If you can’t reach into your pocket or you don’t have it in a savings account, then you don’t have it to spend – PERIOD! This “cash only mindset” can really set you on a course of building your wealth, which leads us to number 8…
8. Inhibits the Creation of Wealth: It’s a proven fact that using credit can affect not only how much you spend, but what you buy! If you use plastic, you are unconsciously willing to spend more than those who pay with cash! And if you are reading this saying to yourself, “yeah, but I pay off my credit card balance in full every month”, you are still hurting yourself. Just because you pay off your card balances every month to supposedly avoid finance charges (I use to do this all the time myself) doesn’t mean using credit cards isn’t hurting you.
You are still overspending, simply because of the payment method you chose to make those purchases with. See #3 and #7. Plus, last time I checked, none of us has a crystal ball so how can you see something cataclysmic and unexpected coming? The answer is; you can’t! What’s your plan B in case you can’t pay that balance in full?
9. Makes You Spend More of Your “After Tax” Income on Debt: In a recent report titled “Damage of Debt” written by Katherine Porter, she wrote that in the last decade, on average, more than one million consumer bankruptcy cases were filed annually. To put that number in context, one million bankruptcy cases means that in 2012, more women will go bankrupt than will divorce, and the annual number of freshly minted bankruptcy debtors will exceed the number of new college graduates. Can you say WTF?
She goes on to write the bankrupt are only a small subset of those struggling with debts. In 2006, one in seven families was contacted by a debt collector. The foreclosure crisis and the recession have only expanded the number of people struggling with debts and I went through every single one of those scenarios. So the million dollar question is; why would you want to?
10. Lose the Freedom You Seek: Living a life without any debt means more freedom in deciding what to do with your life and how to live it! What about peace of mind; does that qualify as freedom? Knowing you don’t owe money allows you to sleep like you just took a whole ambien! Knowing exactly where you stand financially gives you freedom! Why would you ever willingly want to give that up?
Developing a Spending Plan Will Help
Knowing what’s coming in (your income) and what’s going out (your expenditures) and then carefully deciding what is, and what isn’t necessary, is the key to living a wonderful, peaceful, and happy life. Living your life unwisely using credit and getting into debt will go a long way toward keeping you from achieving that freedom!
What other reasons can you think of for not using credit and staying out of debt? I’d love to read what you have to say on the subject. Please leave me a comment below and I’ll respond
As included in the Carnival of Financial Planning 12/7/12 @ Master The Art of Saving Blog