VOL. 127 | NO. 251 | Wednesday, December 26, 2012
Rays of Wisdom
Dana and Ray Brandon
Tight Credit is Your Friend
By Ray and Dana Brandon
Ray’s Take Credit is tighter than it used to be. Loans are harder to come by. That’s good news as far as I’m concerned. Many people are still longing for those “glory days” when credit was easy for anything we wanted. Well, they didn’t end well for most people.
Americans already carry vast amounts of debt: $13.5 trillion in mortgage debt, $1 trillion in student loan debt, and over $850 billion in credit card debt. That last figure represents an average of $15,587 per indebted household, and over 46 percent of U.S. households are carrying a credit card balance. The scariest thing of all – these numbers are significantly down from the previous year, yet 43 percent of American households still spend more money than they earn.
Anytime you borrow money you’re automatically paying more for whatever you purchase. Get a moderately priced car on a five-year loan and you’ve just added thousands to the purchase price. Buy a pair of shoes on sale with your credit card and, if you carry a balance, before you’re through paying for them those shoes will cost you much more than full price.
It’s probably not your plan, but every time you use credit to purchase anything, you’re basically saying, “I’ll pay you even more money later if you’ll give me what I want right now.” That’s obviously not a good idea.
That’s why tight credit is your friend. It pushes you to skip impulse purchases and save for what you want. It drives you to build a rainy day fund. Best of all, it can lead to the exceptional satisfaction that comes when you make that big purchase and you know you don’t owe a dime on it.
Dana’s Take No one ever woke up in the morning with a big grin and said, “Oh, boy, I’m so glad I’m in debt!” Borrowed money is always a burden – financially and emotionally. Every time a bill arrives in the mail or through the Internet it creates stress in your life.
Debt is a choice and just like with drugs, “just say no” to debt. If you can’t do it for yourself, then do it for your children. Show them that if you don’t have the cash, you wait to make a purchase. Share with them the gratification of saving.
There are valid reasons for incurring some debts. A home mortgage can defend against future increases in housing costs. A student loan could lead to a lifetime of higher earnings. However, most of the time when we go into debt it’s simply a matter of seeking instant gratification.
If we want our kids to control their impulses, then we have to control ours. Our grandparents used to save for the things they wanted and we can, too. It’s an old-fashioned family value that feels just as good today as it did back then.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.