Credit is a necessary part of today’s economy, thus as such it has both its advantages and disadvantages. It is important that you weigh all of the factors involved before making a decision to use credit. If you do not consider the downside, then you might find yourself wishing in the future that you had not incurred the debt.
Generally speaking, you should think before you buy - is it for a want or a need?
We all NEED these:
A. food,
B. clothing,
C. shelter
D. transportation,
Beyond these needs much of what we acquire is really for wants, not needs. Also, in these days of massive layoffs and unemployment, it is always a good idea to live on a bit less money than the one you have coming in, rather than borrowing on the assumption that next month or next year will be better.
When you do decide to finance a purchase, you should shop around for the best interest rate, make the largest down payment that you can afford. Also, make sure that you know about all the hidden charges, interest costs, late payment penalties, and so forth, before signing on the dotted line. Finally, you should ask about who actually holds the financing….the reason is that many consumers have been surprised to learn after arranging a purchase that they will be dealing with a finance company when it comes time to pay.
Most retailers put emphasis on the “low monthly payments” instead of the interest rates being charged on financing promotions, and they do not really want you to know the total cost of buying with credit. What you should do, out of curiosity, is ask the total cost of the monthly payments over the life of the contract, and compare that to the cost of paying cash today. You’ll be surprised!
You should not use credit for something which will not last until the bill arrives. It is one thing to have a credit card bill for a stereo or a new suit which you’ll enjoy for several years. It is another thing to have to pay for a restaurant meal or groceries that you enjoyed two weeks ago.
Always keep track of all credit purchases in one book, and consider how they impact your monthly budget. If you are using a credit card, try to pay it off in full at month-end to avoid interest charges, and treat any purchases like cash transactions with respect to your record-keeping. When you are borrowing for a larger item such as a car or furniture, always look at how the monthly payments fit into your budget.
A good guideline to remember is that non-mortgage debt payments should be no more than 10-15% of your regular take-home pay each month. A higher percentage can be an indication of trouble on the horizon.
Finally, consolidation loans are useful under certain conditions - but only if the original sources of credit which are being consolidated are closed. A consolidation loan which pays off credit card balances but does not close the credit card accounts is a ticking time bomb, because now the capacity to incur debt is greater than ever.
Posted under credit cards, debt consolidation, manage your finances, savings
This post was written by fixbadcredit
