Stop borrowing money! This is the advice from all the good financial pundits.
Borrowing money can be addictive and destructive. Divorces, wars and a multitude of other woes can be caused by debt. If you want to really get an idea of how volatile borrowing can become – borrow money from a close friend or family member, don’t pay it back, then crack a joke about it. Paying back borrowed money is a serious personal matter.
But most people don't stop to fully consider their borrowing habits. More and more Americans simply pay with credit for every transaction. If you used a credit card, you borrowed money. I think it’s the new American pastime. We borrow money. We try to pay it back. And when we can’t, it’s destructive. So maybe it's time to ask yourself: why do you still borrow money?
Maybe it’s easier to look back a generation. Why did our parents borrow money and how did they do it? Conventional wisdom suggests they only used credit for basic needs and large purchases, and that they took time to consider the consequences. In most cases, we think their credit use was only for very large and necessary purchases, i.e. houses or cars. America’s “Greatest Generation,” it seems, took their time to make decisions, and used credit for the major, life-enhancing, necessities.
One of my colleagues, and I use the term loosely, would take issue with these historical assumptions. He would proclaim the remarkable and overriding benefits of credit to the world, and point you to The Morality of Moneylending: A Short History, by Yaron Brook. My colleague, Brook, and a whole pot of moody tea partiers would probably point to “evidence” that mortgages, auto loans and plenty of fast cash providers even flourished in the 1940s. He points out that quick cash has existed from biblical times, through Shakespeare’s times, and in the late 1800s. He points to evidence that volumes of spend-happy families from the Greatest Generation had to visit debt counselors in the 1950s. This colleague thinks that the Greatest Generation certainly did some serious borrowing and spending, and that we are not uniquely bad borrowers today.
Fair enough. However, my point is – be a prudent borrower, like your father and grandfather would want you to be. Most people realize the Greatest Generation was great because they were personally responsible, frugal and humble. If you’d be embarrassed to tell them about your borrowing, maybe you should reconsider. Nobody’s grandpa would approve of financing $70 on a pair of chinos, even with a discount. Grandpa would probably rather invade Normandy again than have his grandson finance pants.
Thought-out, balanced, affordable and necessary borrowing may be wiser and cheaper. Like everything for sale in the market, the quicker you want something, the more expensive it is. Compare buying bacon at Sam’s Club to buying bacon at a convenience store. Compare the higher expense and convenience of taking a taxi, to the lower cost and longer wait for a bus. If you want something immediately in this country, you pay more. Credit is not unique, and obeys every universal rule of economics. If you want someone else’s money and you want it quick, that is going to be risky for the person with the money, and you'll pay to offset the risk.
Financing anything requires applications, reviews and credit checks. For example, student loans take time to get, and should be beneficial, but you still need to be careful. Even student loans can be more dangerous than they appear – students are exiting school with whopping debts and student loans aren’t
dischargeable in bankruptcy. Hallowed halls, ivy, books and smart professors just ain’t cheap. So take time to review any loan materials with someone you trust, and to consider the long-range consequences before borrowing money if you can afford the wait.
By Clinton Heyworth, with contributions by Justin Hosie
Credit.com's credit card payoff calculator can show you how long it'll take to pay off those chinos.
G. Clinton Heyworth – Clint Heyworth is a member of
Chambliss, Bahner & Stophel, P.C.’s Consumer Finance Group, focusing his practice on general corporate law, including consumer finance, regulatory compliance, business organizations and planning, commercial transactions and conflicts of laws.