What is Credit?
Today, the average American owns at least one credit card. We often buy our dinner on credit, we put gas in our cars with credit, and we make luxury purchases on credit. A common stigma attached with purchasing on credit is that all debt is bad. This is untrue. In fact, there are both good and bad forms of credit.
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Credit can provide consumers with the leverage they need to make purchases when they don't have huge sums of cash on hand. If used properly, credit can be a wonderful thing. However, misusing credit can be a bad thing. Probably the greatest misuse of credit is by charging perishables. Using credit to purchase gas, groceries, or vacations is not a smart use of credit.
Better uses of credit include buying things that depreciate in value but are not perishable. These types of items are clothes, automobiles, household items such as furniture or appliances, etc. A consumer should be careful of how many of these purchases he makes on credit since these items do decline in value.
The best use of credit is for purchases that actually appreciate or increase in value. For example, purchasing a home would be a good credit investment since its value will rise rather than decline or lose its value altogether.
The bottom line is that we live in a world where credit allows us to enjoy a higher standard of living. With benefits like that comes great responsibility. As a consumer, it is your job to make sure you make wise decisions. Just because a purchase is possible via credit does not mean that it is the best financial decision. Buying too many items on credit can be the beginning of a downward financial spiral. When embarking onto credit based purchases, one should remember to tread carefully. Be sure that you can afford the ultimate investment you are making. Taking advantage of too many credit opportunities can also taint your credit report in such a way that it may be nearly impossible to make purchases on credit for a very long time.
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