Over the past 25 years the amount of debt the average American or Canadian owes has risen amazingly. The mindset if have now, Why wait for spring? Have that car or large house now. This is a very different mindset than our parents were raised on. Their attitude often was ?pay cash? and ?if you cannot afford it, don't buy it?. Our parents were more often than not raised themselves by parents who had lived during the ?great depression? of the 1930's where almost everyone had nothing , no job, no money , no employment and certainly no money to pay off loans. Hence easy credit was not available nor part of their lifestyle. An economic historian R. Z. Strokon has noted that the best education that many young people could have today is to ?learn to wash floors?.
It's good to now where a point of view and indeed a way of live originated from.
Is this mindset relevant today and of value? In our day and age credit if used wisely can well result in increased net worth over a person's or family's employment and financial lifetime.
As you well know over the last couple of years the cost of real estate ? whether it is a house, a condo, a chalet or summer lake cottage has risen through the roof. You have to life somewhere ? whether it is to pay rent or pay rent. If you go on a summer vacation you will pay for accommodations or you may pay the cost to pay down a loan for that summer vacation spot. In addition the mortgage payments may be tax deductible ? a useful overall reduction in cost to you ? that is assuming that you have employment and income to put you in a tax bracket where the tax deduction is of financial benefit to you and your family.
The basic problem is that in these times of great real estate inflation is that by staying out of the game ? and buying the property. That by the next year the cost of the property may have escalated greatly and you may well be locked out of the purchase of your dreams. Compound that with the fact of the math that the increases, while even within your percentage means, are on much bigger baseline amounts and wow. As an example if the house of your dreams increased by a reasonable year to year rate of 10 % - then 10 % of $ 100,000 is $ 10,000 more of loan or mortgage to carry. However if that house has now escalated in price to $ 300,000 then your increased debt load that you will carry to have that same property will be $ 30,000. This is why in effect many future home owners are in effect panicking and buying now instead of forestalling their plans of home ownership for the future. Otherwise they may well be locked out of home ownership.
What if the loan payments are not tax deductible? It can be pointed out that in the case of a depreciating asset that by buying the item on time that not only are you paying interest on the loan, for the big screen TV from a big box store, but also the TV is depreciating as you watch it. It can be argued that you are obtaining enjoyment and status from the large plasma TV and that is a benefit in itself, but overall you are paying a very high cost to watch those TV shows.
However what if the depreciating asset actually increased your income stream? It a good idea to borrow then? For example perhaps you lack transportation ? or reliable transportation. A car loan is not tax deductible, for you as an individual. By having the car you may be able to obtain a better paying job, or in some cases if you are continually coming late to work due to car breakdowns may allow to keep a good paying job. In addition you may have costs and costs of your time if you are able to take public transportation to work. In this case by purchasing a new or replacement car and even if you have car payments , by purchasing that vehicle and financing it may well be to your overall financial benefit.
In the end as in life ? nothing is either entirely good or entirely bad. It all depends. Taking loans or mortgages and incurring debts can be good or it can be bad.
Don't be forced into anything. Take time to think and ask opinions from qualified people with different ranges of expertise and expertise. In the end everything is life is a decision ? cost versus benefits. There will always be some risks involved in any intelligent decision. Just do your homework, be above board. Lastly , if possible don't be pressured into any transactions that ultimately are not to your personal benefit.
Helen Saxon, spokesperson for the Finance and Leasing Association (FLA), claimed that personal borrowing uptake is falling as Britons continue to feel the impact of recent interest rate rises by the Bank of England's monetary policy committee (MPC). Over the last 12 months, the MPC has increased the base rate four times which has increased the cost of secured loan repayments, with a further rise predicted to take place when the committee meets later this week.
She said: "There is less money around because people are putting more towards their mortgage. It's natural to tighten your belt in these cases and spend less on credit cards." Overall, she claimed that consumer credit can be "a good thing as long as it is used sensibly" and that the surge in its availability to borrowers has seen it "pretty much propping up the economy".
The spokesperson added that credit can act as a "leveller" as it gives Britons the opportunity "to buy things that otherwise they couldn't afford or that they would have to save up for a long time for". However, Ms Saxon warned that lenders need to do as much as possible to ensure "safeguards" are in place so that consumers do not develop unmanageable debt problems where they are unable to make repayments on existing loans.
"Responsible lending is a buzzword that has been around for many years - and lenders do try and do that to the best of their ability with the data available," the FLA representative pointed out. She added that consumer credit lenders such as John Lewis and Marks & Spencer were reported to have their finance provided from a bank which in turn consults repayment and credit reference agencies to make certain that borrowers can afford to make pay off loans. Ms Saxon also claimed that repayments on borrowing, "especially on the credit card side", have been increasing over the past year which could indicate a greater desire among consumers to manage their debts.
In related news, it has been recently suggested that moves by the Office of Fair Trading (OFT) to make credit charges more "transparent" would be a "boon" for consumers. Stephen Rose, director of Debt Advice Bureau, claimed: "Anything that makes it clearer and more obvious to borrowers what the cost of the debt will be - what the charges are, what the interest rates are - is obviously good and they will be in a position to make a more informed choice."
He added that although the OFT proposals may not make an impact on credit card uptake, those who opt for the borrowing method "can know more and are better informed". Mr Rose went on to suggest that recent moves within the consumer credit market - which includes personal loans, credit cards and store cards - can only be good news for borrowers.
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Abbi Rouse has sinced written about articles on various topics from Personal Finance, Careers and Job Hunting and Diabetes Treatment. Abbi Rouse writes for AllAboutLoans.co.uk, an online loans comparison site, visit us today for information on all loan topics including sourcing from all leadin. Abbi Rouse's top article generates over 49500 views. to your Favourites.