Buy Now Pay Later Mentality

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Buying now with the intention to pay later has created devastating problems for many individuals. The current financial crisis in the U.S. can’t be totally blamed on lenders. Part of the problem is many consumers have been living above their means. The Federal Reserve estimates that 40% of Americans are spending more than they make. Eventually this catches up with you forcing you to make major changes. Perhaps it’s a good time to review the basics of credit card use.

Initially credit cards were designed to pay for only certain things, like meals at certain restaurants. The credit cards issued by banks were intended for use during emergencies or those times when you didn’t have cash in your hand. The intent was to pay the balance in full when the statement was received or at least in a short period of time. The cards were used to buy something that you could not do without. As credit cards became more popular everyone started offering them. Gradually consumers started using credit regularly to satisfy all their desires.

Companies issuing credit cards profited from the interest and fees charged. The more consumers spent the more credit they were offered. Years ago credit limits were around $1,000. Today they often exceed $20,000. If you can manage your credit this is OK but unfortunately many holders of credit cards do not know how to control their spending. One of the biggest mistakes is continuing to spend without putting money in savings. Most people using credit plan to pay their bill. But they don’t allow for emergencies or have a survival plan for tough economic situations like we have now.

Creditors are rewriting their policies in response to what is happening today. Many companies have closed while others are incurring huge losses. Foreclosures and bankruptcies are the highest they have ever been. The experts believe it could be years before our country digs itself out of the hole we are in. You only benefit from your mistakes when you learn from them and correct your behavior. What is the proper use of credit cards?

As a society we all need to learn how to live on what we earn. It is a mistake to define success by how much money a person makes. This causes individuals to do things they really can not afford. The more stuff we own the more successful we appear. The commercial “I’m up to my eyeballs in debt” comes to mind. Becoming debt free is a goal we all need to strive for. You might have to wait longer to satisfy your wants but in the long run you are richer. By spending less you should be able to save more.

Years ago when I first started working in the mortgage business, underwriters would require borrowers to cut up their credit cards before they would approve the loan. Sometimes I thought that was drastic but now I think it’s a good thing to do. Cut up your cards, pay off the debt, and learn to live without using credit. Realistically you probably want to keep one or two for emergencies but you don’t need a wallet stuffed full of credit cards.

The companies are probably going to stop bombarding you with credit card offers but if they don’t you don’t have to accept every offer you receive in the mail. Make sure the one or two cards you keep have a low interest rate. Avoid cards with high annual fees. Make sure all your payments are made on time. Late fees, returned check fees and other charges can be excessive. Don’t use all the credit that is available to you. When you do use the card pay the full balance the next month to avoid interest charges.

Having credit available for use is a privilege and a responsibility. If you have misused your credit it is not too late to learn from your mistakes.

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Filed Under Bankruptcy, Credit and Debt Management, Saving Money 

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