The C Word

Credit. You hear it all the time these days. Credit Cards, Credit Crisis, Credit Scores, Credit Checks. We’re a nation that revolves around credit and it has gotten us in to some trouble. The average American carries over $9000 in credit card debt. I’ll admit, I just recently dropped below that average and when I have it gone completely I am never going back. We rely on credit to buy our houses, our cars, and the worst part, the things we want but can’t really afford. I think it is time to get back to simpler times when we bought only what we could afford and weren’t slaves to creditors. I’d like to think that it would be easy for us to get away from relying so heavily on credit, but it isn’t going away any time soon. The best alternative we have is to be smart with how we use our credit and to make sure we’re not getting in over our heads when we use it.

Here are a few things to think about when it comes to using credit:

Credit Cards- It is very easy to get buried in credit card debt. You think “I’ll just pay it off next month” but that never happens and before you know it you’ve got so much that you feel you may never be able to pay it off. If you can’t have a credit card without being tempted to buy things that you can’t afford, then you should get rid of it. My wife and I have decided that when we have all of our credit cards paid off we will only keep one that will only be used when a debit card won’t work. Instead of a credit card, use a debit card or cash, that way you can’t spend more than you already have. In fact, studies show that if you pay with cash, you’ll actually spend less because you can actually see the amount in your wallets decreasing.

Store Credit Cards-Almost every store you go to these days you are offered a discount on your purchase if you sign up for and put the purchase on the card. Resist the temptation to “save a few bucks” on your purchase. These stores are offering it for a reason, and it isn’t just to help you save money. I once heard that Target makes more off of credit cards than off of selling products. They are betting on the fact that you won’t pay it off right away and they’ll make far more than the amount you saved.

Auto Loans-I will never buy another car on credit again. I don’t think that they are so expensive that they can’t be paid for in cash. A good used car is not overly expensive in my opinion. If you do get a car loan, I would shop around for a good rate and do the shortest term possible. Also, buy a good used car, never buy a new one. They depreciate faster than you can pay them off. Watch this video, it’ll amaze you.

Home Mortgage- Before you jump in to a house payment, make sure you can afford the house you’re buying and the upkeep that goes along with it. The general recommendation is that the total monthly payment not exceed about 30 to 35 percent of your take home pay. Before you begin looking at buying a house, I would make sure to find out what your credit score is and if it isn’t high enough, then you should take the necessary steps to get it raised prior to searching for a house. A lower credit score can cost you thousands more on your house in the long run. Here are two resources for checking your score. Remember, checking your own score doesn’t count against you. Get FICO Score Watch Now! or Get Equifax Score Watch Now!

Protect your Credit- Dave Ramsey says that we shouldn’t “bow down to the almighty FICO” and that is probably true if you’re never going to use credit again, but that is not realistic for most people. Most of us can not afford to pay cash for everything, especially a house. Along with that, paying attention to your credit will help you reduce your risk for identity theft. Visit LifeLock to find out more about their identity theft protection. It is well worth it.