Americans are two trillion dollars in debt.  Credit, the ability to borrow money, can be very dangerous.  In short, it’s spending money today that will be tomorrow’s income.  Most economists would say that credit is an important part of the ability of individuals, families, cities and ultimately nations to function in a financial world.  Credit consists of unpaid balances on auto loans, credit cards, student loans and generally any non-mortgage debt.

 

One of the real dangers of excessive borrowing is that it creates high monthly payments, which often strains even well planned budgets.  The pace of borrowing often exceeds the family’s growth in income and leads to a form of “credit debt bondage.”  The interest expense of credit debt is often very high.  Banks and other lending institutions often will loan to people with a higher credit risk, but do so at the expense of the borrower.

 

When employed by a major national bank as a Vice President and Business Banking Officer, I learned of a huge profit opportunity for the company.  Often those that did not qualify for the terms of a regular loan could still get money, but at an interest rate several points higher than normal.  Of course, individuals, families and businesses would quickly agree because, in reality, they needed the money at any cost.  

 

People that have high monthly credit payments often sacrifice their other financial goals just to make their payments.  This is a very serious offense.  By not investing in a house, savings account or other forms of investment, they seriously put their future retirement in question.

 

 

Your thoughts on this subject?  Your comments appreciated!

Content © Rich Brott, 2011

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