Having worked in the financial space for many years and after having seen so many of the problems that credit has caused Americans, I often wonder…. Is credit a good or a bad thing? I guess it’s like asking if guns are a good or a bad thing. It really all depends on how you use it.
Let’s start with a little background on credit and its beginnings. Credit has been around for centuries. Debtors would pay back the local grocer as they could, or farmers might pay back debts after harvest each year. In fact, many merchants in the 1700s recorded substantial sales on credit or they risked going out of business as people would go elsewhere. The acceptance of installment debt by merchants began the explosion of borrowing in just about every part of our lives.
One could argue that credit, when used as a tool for business, is a great thing. It can dramatically help a business grow and flourish by allowing business owners to upgrade infrastructure, upgrade/buy more equipment and aid in cash flow and step costs. When used by individuals, it can also be a good thing as long as you are buying appreciable assets on credit. Although recent years have shown that home ownership is not a guarantee of wealth aggregation, it’s still one of the safest bets as far as a credit based appreciable asset purchase.
So when does credit take us down a dark path? The answer is simple. When we buy discretionary items on credit that only lose value. Examples of this this are expensive cars, flat screen TVs, smart phones and basically any consumer electronics. If you have the money, there is nothing wrong purchasing these items as long as they fit within your budget. Buying them on credit, however, can quickly lead you into folly.
So, is credit a bad thing? Yes and No. Credit is simply a tool. It’s up to you to use it correctly. Is credit misused by most people from time to time? Absolutely! Is the misuse of credit a symptom of our increasingly materialistic society? Yes. For many people credit is a blessing, for others, it’s a rope with which you hang yourself. Figure out which type of person you are and if it’s the latter keep credit at an arm’s length and you will come out on top.