Consumer Credit Insights for Start Outs

Learning how to tackle consumer credit early in life is very important. Whether you are in college, just out of college or you have just landed your first job, you need to arm yourself with money insights on dealing with consumer credit and debt.

Putting proper financial foundations early in life can be a determining factor to securing your financial independence and freedom. One of the things that you’ll need to learn early in life is how to tackle credit and debt.

First Things First

You buy stuff on credit when you do not have enough cash or not all. You get into debt when you borrow money for things that you did not have money for. So, if you need something, find out if you have money for it, then...if you find out you don’t have the money, wait till you get the money first.

Delaying gratification is one of the most difficult things that most people have to deal with today. When you want something, you want it fast and you get it fast even if you don't have the money. But that behavior has ruined many, financially.

You Don't Have to Buy Anything on Credit

It’s not a must that you have to buy anything on credit. I know the world financial systems are built or run on debt but that doesn’t mean you have to run your financial life on debts. Improving your financial literacy can help you manoeuvre the consumer credit pitfalls that have brought many people into financial ruin.

Cash vs. Credit

You will always have two options when you want to buy something. Either pay cash or get it on credit. Getting it on credit, you’ll either use a credit card or a personal loan. But use cash as much as possible. You end up paying more for something you buy on credit than when you buy it with cash. Credit costs money because the amount you borrow has to be paid back with interest or if you buy on hire purchase, the price is almost double after paying the installments.

If you want something, save for it and then buy it. If you can't afford to pay cash for can't afford it!

Banks...Not your Buddies

Someone said, “The whole essence of banking is to make us, companies or individuals slaves to debt. You control debt, you control everything.”

Realize that banks, credit card companies or any financial institutions are NOT YOUR FRIENDS. They are out to make money. When they lend you money or issue you a credit card, they are not just bailing you out. They expect you to pay back...yes! pay back with interest. What you owe them (loans and credit card balances) are assets to them but liabilities to you.

When they entice you with minimum monthly payments so that you can take their loans and credit cards, it’s not that it’s the smartest thing for you to do but one of the things that you must be wary of. Minimum payments no matter how convenient they are, they increase the overall amount paid over time.

Paying more than the minimum reduces the principal or the balance due, which decreases the amount of money you will end up paying overall. Note that some creditors frown on this practice. They want you to remain in debt paying a minimum payment on their loans and credit cards every month for THE REST OF YOUR LIFE!

Am I saying you shouldn’t ever take a loan or have a credit card? ... Nope! I do have a credit card myself and I have also taken a loan more than once. But just be informed and in control of credit and debt.

Good Debt and Bad Debt

You are surprised that there is good debt and bad debt. Don’t worry, you are not alone. I was surprised too when I came to learn about it for the first time. I knew all along that all debts are bad.

  • A good debt is a debt incurred to acquire assets that generate positive cash flow.
  • A bad debt is a debt incurred to acquire stuff(liabilities) that don’t generate positive cash flow.

Knowing which debt is good or bad, is dependent on your financial intelligence. The ability to analyze financial information and make informed financial decisions is one of the most important skills you’ll ever need if you desire to amass wealth in your lifetime.

How to go about Consumer Credit

Even if you’ll one day need...not want...But NEED! to get a loan or acquire something on credit, always manage your personal finances in this manner and you will be fine as you tackle consumer credit:

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