Many credit problems stem from the way people look upon and use credit. While credit can be a useful tool, it also can be an enslaving power that keeps people from achieving their dreams. Everyone needs to know how to look upon and use credit.
What credit is not
Credit is not savings, something that has been truly earned and certainly not a gift. The institution providing the credit is not a friend that wants to help. Being something people should be wary of, there are times it should be refused.
Most of all, credit is not an excuse to buy something that is not vital which otherwise would not be purchased.
What credit is
Credit is a loan that has to be paid back. It is money that the business providing has every intention to get it back with interest and fees added to the principle.
When to seek credit
Credit should be thought of purely as a tool that provides a means to an end. This tool may just be for convenience or security such as when one uses a credit card. Most people need it to buy homes and start businesses. When it can be used responsibly with a clear eye on the future, it should be sought.
Never take out credit to go on a shopping spree or buy things that one would not normally purchase.
Here are some basic principles of credit that should always be kept in mind:
Remember credit is borrowed money
Credit is money that has not even been earned yet. Not only will the amount borrowed need to be paid back, but interest will be required too. For this reason, far from being a license to spend, one needs to be extra frugal when using credit.
Only accept credit when it can be used responsibly
Remember that credit card companies and other lenders are not making loans out of kindness. They are businesses hoping to make money off of people. Only accept offers like new credit cards and a higher credit limit when they are needed and can be paid in full every month.
Pay credit card balances in full
Why pay more than the purchase price for goods? That is what happens though whenever credit cards are not paid in full every month. Delay purchases until the money will be there to cover the entire balance before interest is charged.
Set limits
Be it a credit limit on a card or the size of a house, credit always needs to be used within limits.
Remember the burden of credit
Those struggling to make ends meet need to keep in mind that credit can be an agent constantly working against them. Those paying interest are wasting part of every working day just to pay for interest that goes to someone else. In other words, they are giving part of their labor away for free! Always keep this in mind whenever buying something on credit.
Never use credit to live above one’s means
Money borrowed for a consumer purchase is money for living above one’s means. Someday, the time to pay the piper will come. Instead, make the future a time when savings start to increase income. Those who live below their means can save and make interest something that works for them.
With these principles in mind and credit looked upon as nothing more than a temporary loan that needs to be paid back, anyone can make credit work for them instead being a servant to it.
