Credit Is It In Your Financial Future?

When you begin working out your budget, you begin to really figure out answers to the following questions:

• What do we need?
• What do we want?

How many of the things we want and need can we afford now? If we can’t afford them all now, which ones should we get first? If you found there was quite a gap between what you want and what you can afford right away, you are not very different from most other couples especially when you are just starting out.

Families work this problem out in various ways. Some put aside a certain amount out of each paycheck and slowly save up the sum needed to pay cash for things, one at a time – pieces of furniture for the first home, for example, or a car. Others feel that the marriage is off to a better start if they have a car and furniture right from the beginning. That’s one reason we hear on TV commercials from furniture companies – 12 months – Same-As-Cash!

It is possible to do this – to buy what you need and pay for it as you use it. But you must first understand some of the advantages – and limitations – of consumer credit.

There are a number of misunderstandings about the use of credit which should be cleared up.

What Credit is NOT

1. Credit is not a way of beating your budget. The payments you must make each month on your installment contract (loan) or on your credit card or on your cash loan (equity line of credit) are part of your budget.

2. Credit is not a way of buying what you cannot afford. It does not give you income that you do not already have. It may give you a more convenient way of timing the payments you make. But it does not produce extra money for you out of thin air.

3. You do not have an unlimited amount of credit. Your opportunities to use credit in your community depend on your credit rating… and that, in turn, depends on your reputation for paying your bills on time.

4. Credit is not free. It is a service and you must expect to pay for it. Using credit will cost you more than using cash. Be sure you understand what those extra costs are, and be sure you feel that having things now instead of later is worth what it will cost you.

Now that you have clearly in mind the fact that credit is not a free and fast ride along the path to extravagant living, let’s look at credit – the types of credit and find out if, when, and how you can best use it in your financial plan.