No credit, bad credit? No problem. Or… maybe not.

By Janice Desautels

It’s been about 30 years, give or take a few, since cash was the common method of payment. Skip forward multiple generations of technology later, and cash is often never used. How has that helped us?
Would you agree that we can make decisions to purchase quicker and then make the transaction quicker? Let’s flip the coin – has it made saving easier?
Not much has changed to tip the scales from one generation to another except in terms of the decision-making process.
I’ve worked with many families who are unsure about saving their money in vehicles where the rate of return could fluctuate and even drop at times. Of course, everyone wants their savings to grow over time. However, when I look at their spending habits, there is usually considerable debt that they pay on a monthly basis where the cost of that debt doesn’t seem to be of concern – even if they have to pay an extra 20 per cent every month on the purchase. Isn’t this a contradiction of sorts?
Debt is a big business and like all businesses, there is an expectation of profit. To achieve this, the debt industry has put a lot of muscle into marketing; so while you may think you’re making an independent decision, are you really?
We live in a financial world of monthly payments, now biweekly if you follow the newest marketing ads. In my practice, it is very common for clients to picture their financial responsibilities by compartmentalizing them into pay cheque increments. This is prudent in organizing a monthly budget, however it can get out of hand very quickly if purchases exceed our ability to pay in full.
And just because we think we can handle the monthly instalments, we often make the decision to purchase. But is the real cost of that decision affordable?
The Bad and The Ugly
The simplest explanation is that debt can get real bad and really ugly very fast due to the lure of credit. We’re bombarded with messages telling us we’re pre-approved for credit, with no money down and no payments for months. No credit or bad credit? Come see us.
Before you give in to the marketing of debt, ask yourself these questions:
What would you be using the credit for? If it would be to purchase items such as food, clothing, and entertainment that you already pay cash for and that are consumed quickly – reconsider. Having a credit card for such purchases gives you a false sense that you have more money than you do and as a result, you may end up with ongoing interest charges.
If you cannot be disciplined to pay the bill in full at the end of the month, reconsider and don’t put yourself in jeopardy.
Did you do your research? The marketing may seem alluring, but what is the true cost of the credit being offered? What is the result if the item isn’t paid for in full by the end of the promotion?
Other costs not often thought about that can have a serious impact are the effects of your future decisions. A lot can happen in three to six months. If your income stream was interrupted, could you pay off your debt or sell your purchases for what you owe?
Consider the feeling of debt. What is more gratifying? Saving for something and making the purchase knowing it is yours, or buying now and paying for it long after the enjoyment is over?
Slow down
A good rule to follow is this: slow down so you can think clearly about your purchase, separate what is good for you versus what is good for the debt industry, and understand the total cost of the payment options being marketed.
Janice Desautels has been working with families and individuals for the last seven years helping educate in the field of financial literacy. She is a Certified Financial Educator with over 15 years’ experience in teaching and training adults.

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