In the process of building our financial future, there are times when we ask another person or a financial institution to use their money for a limited period of time. This is borrowing or taking out a loan. Usually, the lender allows us to use their money in exchange for a percentage fee called interest. Our generation seems to be caught up in easy credit because of the ready money available.

There are very few people (if any) who do not worry that money may be going out the door faster than it is coming in. Most Americans have revolving credit balances from credit cards and other retail establishments and a small group are enslaved to mountainous consumer-debt burdens that eat at large parts of their income. Whether you are moderately in hock or in a deep hole—you can break that debt cycle.

At one time (a few years ago), it may have made some sense to borrow. You could deduct interest payments from your income taxes. With the cost of living running at 8 to 12 percent a year, you could repay your loans with cheaper dollars later. But now tax deductions for interest on consumer purchases have dried up. Inflation seems to be under control, meaning that expensive dollars remain expensive; and you can’t count on huge raises in personal income a couple of times a year.

In spite of some lower interest rates available, credit card companies continue to charge extremely high interest on the unpaid balances. At the same time, passbook saving accounts pay so little, it is hard to see an advantage to them. Falling behind on repaying lenders will only serve to hurt your credit rating. Late payments can remain on your credit file for seven years. Even if you do pay on time, having too much installment debt compromises your ability to borrow for something important in the future. If the whole country is in a recessionary economy, the last thing you should have is a lot of debt.

In order to be free from all those creditors, admit the problem in this area and stop borrowing. You too, as others, may be a spendaholic. Do you have too many credit cards? Do you like to shop too much? Is it hard for you to resist a so-called bargain?

Your thoughts on this subject? Your comments appreciated!

Content © Rich Brott, 2011

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