Money Credits

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By peace | March 6, 2007

An important part of personal financial planning is using credit wisely. Credit allows a person to exchange future income for current consumption, that is, buy now and pay later. It is important to know that although credit increases a borrower’s immediate purchasing power, it does not increase income. A person who understands the advantages and disadvantages of credit can often maximise the benefits of credit.

The advantage of credit is that it allows a person to preserve his assets and savings while paying gradually for the goods and services he enjoys. It also provides security by letting a person deal promptly with temporary financial emergencies without seriously draining his assets. Credit makes shopping convenient; credit and charge cards do away with the need to carry large sums of cash.

The disadvantages of credit are just as many. Credit has a high price attached to its user friendliness: interest cost and annual fees for basic and supplemental cardholders. It also casuse the loss of use of future income (which is used now as credit) and induces an urge to overspend. In addition, failure to pay the financial institution or credit card company on time for credit used could result in a negative credit rating that jeopardises the availability of future credit.

Borrowing or obtaining credit is indeed a double-edged sword. For many people, borrowing is necessary for aggressive wealth-building, such as margin trading, real estate, or startiung or expanding a business. The other edge of the sword is the abuse of credit.

Borrowing is an important tool in personal financial planning. Some common and necessary uses of credit are housing loans and car loans. These credit facilities are ordinarily given by banks or finance companies to enable the buyers to buy the homes or cars now that otherwise could not afford.

Although there are advantages and disadvantages to borrowing, I try not to borrow as far as possible. I find it very stressful and there is no peace when I know that I have such liabilities. I do not like to be in debts. I cannot take too much risks like that. I would rather spend money that I can afford. The loans which I will consider taking would be loans like renovation loans, car loans and housing loans. Other types of loans like credit card loans, overdrafts, I would rather not touch them.