Credit: The Middle Class's Welfare
Credit has turned into something much different than it used to be. Credit combined with modern day consumerism has created a trap for the average citizen in which they can fall into overwhelming debt. Do not be confused by "good" interest rates, reward & cash back credit cards, or any other gimmicks to get you to own one. If people could live within their means then credit would not be such an issue for so many.
Credit started a long time ago presumably when one person did not have enough of their product to exchange for someone else's product that both parties were interested in possessing. Thankfully the party that had enough goods, the creditor was willing to give up their goods to the party with less, or the debtor, because they believed that the other party would give the agreed amount of goods back at a later date. This was more than likely done between people that knew each other in small communities. Their knowledge of each other would give them assurance that the debtor was going to pay their part of the deal and more than likely at little to no interest. These deals were also largely based off of buying or trading goods that were needed to stay alive.
Credit started a long time ago presumably when one person did not have enough of their product to exchange for someone else's product that both parties were interested in possessing. Thankfully the party that had enough goods, the creditor was willing to give up their goods to the party with less, or the debtor, because they believed that the other party would give the agreed amount of goods back at a later date. This was more than likely done between people that knew each other in small communities. Their knowledge of each other would give them assurance that the debtor was going to pay their part of the deal and more than likely at little to no interest. These deals were also largely based off of buying or trading goods that were needed to stay alive.
In the 1920's the U.S. citizen had access to all numerous manufactured goods but no way to pay for them in whole. This is where today's definition of credit begins. Modern day credit was born when a diner patron couldn't pay for his meal because he forgot his wallet and created credit cards to avoid embarassment again, eventually called The Dinners Club Card.
Flash forward almost a seven decades and it is 2015 a midst the height (every year is the height that's how it works) of consumerism. Credit has morphed into something extraordinary, very profitable for a few, and potentially suffocating for others. There are many types of credit now, but we will focus on one, consumer credit. Consumer credit materializes itself in many forms, the most popular being credit cards (you can buy almost anything on this), auto loans, and mortgages. Consumer Credit paired with modern day consumerism has allowed millions of families and individuals to buy things that they really need (definition of needed things has changed over centuries) such as adequate housing, transportation, and household appliances. In contrast it has also allowed millions of families and individuals the opportunity to buy things that they really don't "need" at quite a cost.
Credit is now a very one sided deal what once started as an agreement between friends or family members has shifted into an agreement between corporations and individuals with very little human interaction. Creditors make money off of consumers by loaning out money in a lump sum that will purchase a need or want of a consumer and eventually be paid back in more than full based on the interest rate the creditor will give you. While many Americans will be able to pay back their debts in full many (surprisingly a lot) also will not be able to, an article published in U.S.A. Today outlined this. One third of all Americans have debt that is negligent meaning they are not paying their bills on time. Those debts have been moved to collection agencies that will take a debtors assets in order to pay off the debts, meaning you would lose the goods (or other assets) you took a loan out for and not get back any money you have already paid toward the debt. However the majority of people that are negligent aren't negligent on mortgage debt, which is generally regarded as good debt.
Credit has been so ingrained into our society that it is almost impossible to live life without ever taking out a loan or owning a credit card. This has led to a way to evaluate someone's ability to repay credit, behold the almighty Credit Score. It allows corporations to evaluate you as a customer, the higher the score the less risk you are of not repaying your debt/credit. You get better credit by paying all your bills on time credit, loan, rent, utilities, etc. Should I take out loans or own a credit card even though they are "bad"? The short answer is Yes, but the longer more painful answer is no. Most people don't have the funds or the patience to pay for everything with cash which is why loans and credit are so popular today. It is also extremely hard to buy a house without a good credit score or any credit score at all, almost forcing you to build credit through loans or a credit card in order to have a score to get a mortgage. If you are unwilling to go against the norm you have to make the most out of this horrible situation. First thing is first, stop buying things you don't need, luxury is good for personnel morale but don't make it a habit. Never, I repeat NEVER carry a balance (money left unpaid on your credit card month to month) on your credit card. If you carry a balance on your credit card you will soon figure out why 1/3 of Americans can't pay their bills because of the ungodly interest rates that they hold, usually around 15%. Build up a savings of about 3-6 months of your monthly expenses in order to pay for emergency bills like car repairs or even worse, income if you lose your job.
If you want to go the rebellious route you must be an extremely financial savvy person to buy everything in cash. This requires you to build a huge savings for surprise purchases like housing or vehicle repair or for planned things like appliances, cars, and houses. To prevent yourself from waiting till you die to buy anything, living within your means will help as well. Just ask yourself if that dryer that folds your clothes, car the drives itself, or house that has one too many bedrooms is worth it. It might be perceived as a harder life but you will own your house, car, appliance outright the moment you buy it. There is nothing better than not having a monthly debt to pay off and you can brag that you paid for your possessions in cash, most people can't do that. But don't worry with a spot on budget and patience you can accomplish all of these things.
The concept of buying things on credit has morphed from a gesture of good will to an opportunity to make money off of someone. Reallistically it is unlikely that you will be able to live your life to a standard you deem liveable without taking on any debt, most people that own credit cards have multiple ones. The best course of action is to live without it until you truly need it to buy a house or car, pay for school, or pay any emergency bills (that your savings can't cover). And lastly live within your means and try your best to not take out a loan for frivolous things like self driving cars. Trust me, accomplishing the "American Dream" will feel much better if you do it without the "middle class welfare" that we all know too well.
Flash forward almost a seven decades and it is 2015 a midst the height (every year is the height that's how it works) of consumerism. Credit has morphed into something extraordinary, very profitable for a few, and potentially suffocating for others. There are many types of credit now, but we will focus on one, consumer credit. Consumer credit materializes itself in many forms, the most popular being credit cards (you can buy almost anything on this), auto loans, and mortgages. Consumer Credit paired with modern day consumerism has allowed millions of families and individuals to buy things that they really need (definition of needed things has changed over centuries) such as adequate housing, transportation, and household appliances. In contrast it has also allowed millions of families and individuals the opportunity to buy things that they really don't "need" at quite a cost.Credit is now a very one sided deal what once started as an agreement between friends or family members has shifted into an agreement between corporations and individuals with very little human interaction. Creditors make money off of consumers by loaning out money in a lump sum that will purchase a need or want of a consumer and eventually be paid back in more than full based on the interest rate the creditor will give you. While many Americans will be able to pay back their debts in full many (surprisingly a lot) also will not be able to, an article published in U.S.A. Today outlined this. One third of all Americans have debt that is negligent meaning they are not paying their bills on time. Those debts have been moved to collection agencies that will take a debtors assets in order to pay off the debts, meaning you would lose the goods (or other assets) you took a loan out for and not get back any money you have already paid toward the debt. However the majority of people that are negligent aren't negligent on mortgage debt, which is generally regarded as good debt.
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| Taken from myFICO.com |
If you want to go the rebellious route you must be an extremely financial savvy person to buy everything in cash. This requires you to build a huge savings for surprise purchases like housing or vehicle repair or for planned things like appliances, cars, and houses. To prevent yourself from waiting till you die to buy anything, living within your means will help as well. Just ask yourself if that dryer that folds your clothes, car the drives itself, or house that has one too many bedrooms is worth it. It might be perceived as a harder life but you will own your house, car, appliance outright the moment you buy it. There is nothing better than not having a monthly debt to pay off and you can brag that you paid for your possessions in cash, most people can't do that. But don't worry with a spot on budget and patience you can accomplish all of these things.
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| From creditcards.com |
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