Wasn’t it Shakespeare who said “Neither a lender nor a borrower be”? It’s a shame that Shakespeare didn’t have to undergo the trials and tribulations of being a parent in the 21st century. Those of us who had baby boomer parents were most likely taught that borrowing and credit should be avoided at all costs. I know mine did. The trouble is that our parents were the generation who had the luxury of growing up in an era where good quality housing was affordable, education was becoming more freely available and the post war economy was on the rise as the nations of the world worked together to secure a better future for everyone.
Unfortunately, those Halcyon days are pretty much behind us. Today, the cost of living is becoming increasingly expensive while areas in some part of the world are stagnating and falling well short of rates of inflation. Extending lines of credit can be the only way for working families to get by. Here we’re going to look at the reasons why, despite what our parents may have said, avoiding credit isn’t necessarily a bad thing as well as where you can find good quality credit at a minimum of risk to your family in an age where more and more lenders appear to be tightening their purse strings.
Credit is not a dirty word
Many baby boomers tell their children to steer well clear of credit cards and loans and such. Their intentions are noble enough, they don’t want to see their children mired in debt, but to warn off borrowing altogether is a gross over simplification that simply doesn’t sit right with the economic realities of the 21st century.
Debt can be a huge obstacle to many a household’s family finances but it’s also an important part of any economy. Most nations have, at some point or another, been heavily indebted to other countries by necessity. Most of us would be unable to ever buy our own property without the debt of a mortgage or have a vehicle to get to work and back without getting into a healthy amount of debt. Debt is not inherently bad, it’s how well we manage the debt that can become our undoing.
Nonetheless, steering clear of debt altogether can be an inhibition should you want to buy a property either as a home or an overseas investment. Those looking to invest in overseas property should click this link for stunning and surprisingly affordable Indonesian properties; https://rumahdijual.com/bekasi/apartemen-cikarang. If you have no credit history, you’re an unknown commodity in the eyes of risk averse banks and mortgage lenders which may mean that you miss out on the home of your dreams or the investment property that can earn you the passive income to assure your family’s quality of life or allow you some luxury in your retirement.
The real reason why credit is so hard to come by
Unfair as it may be, the real reason that banks have become decidedly shy when it comes to lending is out of an attempt to avoid the mistakes that led to the global insolvency crisis of 2007-2008. The truth is that the financial services industry acted like the credit crunch was a big surprise to everyone but looking back it was clearly the result of decades of deregulation of the financial services sector by the likes of Ronald Reagan and Margaret Thatcher. This led to a culture of recklessness and self-interest among financial institutions that resulted in a lot of irresponsible lending to people who weren’t able to make good on their debts. One of the worse offenders was subprime mortgages. Lending expensive mortgages to high risk applicants led to a meltdown that resulted in a great many people losing their homes.
Understandably, the financial services industry has taken great steps to amend these past errors, yet the subsequent risk aversion has proven a real stumbling block in allowing families to own their own homes.
Credit has a dark side
Credit is not necessarily harder to come by today, but good quality credit sure is. As banks and legitimate lenders become increasingly gunshy, a shady industry of less than reputable lenders has arisen. The rise of predatory payday loans companies and high interest household goods suppliers have caused less savvy, credit poor consumers to get themselves into mountains of debt to bowwow a comparatively modest sum. If you’re looking for credit and come across a deal that’s too good to be true, click here to see how to identify predatory and exploitative lenders.
Credit for emergencies
Every now and then life throws you a curve ball like unexpected car trouble, a leaky washing machine or a water heater that gives up the ghost in the dead of winter. In these panic inducing and stressful situations, a lot of people flail blindly at the nearest available source of credit without considering what the implications might be for their finances. First of all, it’s always a good idea to put aside savings for these such emergencies but let’s assume that you’ve either not been able to save or your savings have already been depleted.
An emergency credit card can be useful but is not without its caveats. The trouble is that credit cards are at their best when they come with an introductory interest free period. If you can pay your debt off within this period, credit cards are great. If the card is sitting in your wallet waiting for an emergency this may not be feasible.
This doesn’t mean that you can’t find the right emergency credit card for you, just be wary of hidden charges. Make sure your annual charges (if any) are as low as possible and your interest rate is manageable.
Credit for a home
If you’ve been denied credit for a mortgage this can come as a crushing blow and possibly result in your losing the home of your dreams. If you’ve been rejected by a bank, however, you may have more luck with the new breed of alternative mortgage lenders that has arisen (although their rates and range of products may be less favorable). You can also improve your chances of a “yes” on your next application by making sure that you can demonstrate you’ve managed your existing debts successfully. A financial advisor will be able to help you with this.
Credit for a car
Car credit is extremely easy to come by, however it’s also a field of credit that’s rife with exploitative companies and astronomic interest rates. That said, it also pays to shop around rather than blindly accepting whatever financing agreement your dealer proposes. Unsecured loans, PCP loans and even credit cards can have favorable interest rates depending on your credit rating.
Consolidating your debts
The better your credit rating, the more avenues of credit will be open to you, while a low credit rating can chase you into the arms of less than reputable lenders. Rather than falling into a spiral of debt where you’re constantly chasing down interest rates, consolidation may well be the way forward. Consolidating all of your existing debts into a single loan is advantageous to your credit score as it replaces all of your existing debts with a single new one. So long as you can keep up with the payments it can not only be beneficial to your credit rating but also aid your peace of mind.
Even in this post credit-crunch era there are plenty of avenues of credit open to consumers. Just make sure that you choose the right ones that will help you escape debt rather than getting deeper in the hole.
Disclosure: This post was submitted on behalf of PennyMindingMom.com.