9 Reasons to Say “No” to Credit in 2011

Interesting piece I found on Investopedia this morning: 9 Reasons to Say “No” to Credit.

Their nine reasons:

1. Financing your purchases doesn’t teach self control.

2. Financing your purchases means you aren’t sticking to your budget.

3. Credit card interest rates are expensive.

4. Credit card interest rates increase when you can’t pay off your balance in full.

5. A poor credit score can affect your insurance rates, being accepted for a job or the ability to finance meaningful purchases like a home.

6. Poor financial habits can jeopardize your relationships.

7. Financing purchases can lead to higher spending.

8. In a worst-case scenario, the habit of financing your purchases can lead to bankruptcy.

9. Avoiding financing can bring peace of mind.

I agree with all of the above. BUT…

A smart person can use credit to their advantage. If you have the option to pay cash or get 0% financing, check to see if you can get a discount for paying cash. If not, take the 0% offer. Then, put the cash in an interest-bearing account and set up automatic payments to pay off the purchase within the interest-free period. Sure, interest rates aren’t good right now but you will earn a little something.

Although mismanaging credit can hurt your credit score, managing credit properly (rather than not using it at all) can help it.

6 thoughts on “9 Reasons to Say “No” to Credit in 2011”

  1. I finally put my foot down and said no more financing things. It’s just adding more onto our debt pile, and gives the illusion that we’re somehow saving money. I need to eliminate this debt once and for all!

  2. 0% financing deals often have hidden minefields in them that unwary people who don’t keep perfect records can fall into, particularly stuff like “the real interest rate is 20%, and if you owe a dime after a magic date, all that accumulated interest is due”. Sure, smart people can use leverage to make money on these, just as smart people with leverage can run Goldman Sachs and make lots of money, but if you have any concerns that you don’t know exactly what you’re doing, don’t play these games.

    In particular, if you don’t have the cash to pay the 0% debt thing off immediately, you probably shouldn’t buy the item, since you may not have enough cash to pay for it when the 20% back-interest evil kicks in.

  3. My wife and I have made it one of our goals to never take out a loan again, at the ages of 26 and 25. We built a house this past year and have locked in a very good long term rate.

    I keep telling myself, you’ll be in a great financial place if this is the last loan you ever take out.

    Of course I am not counting monthly credit card use which is always paid in full.

  4. I/We’ve always have been responsible with our credit cards, paying them in full (except during out home remodeling when we basically had zero percent, back in the heydays of 3 years ago.)

    Although I lean toward the desire to NOT use credit cards and start using our debit card more, old habits are hard to break b/c I “earn” some good dough from our rewards. On our Upromise cc we earned $818. On Discover which I use less frequently (than during my 1980s and 1990s love affair with it,) we still received $100 in 2010. So I’d have to earn $1,370 working to net my “freebie” $918 after taxes. Now that I’ve opened a Sallie Mae savings account, we also get a 10% kicker on our prior annual Upromise earnings, so I’ll be receiving another $80+. If I’m going to continue to cut coupons to save money, it’s pretty much a sure thing I’ll continue to use our credit cards and reap the rewards…for as long as they last!

  5. Pay cash if you have it. Unless you can invest it elsewhere and generate 10% or greater return – most people can’t.

    If it’s a consumer good, it should be able to pay off in 12 months or less or don’t buy it. If it’s a car, 2 yrs or less.

    We as society have got to quit thinking we “need” stuff. There is so much to keep up w/ your neighbors and friends. Buy the $22K camry instead of the $40K Lexus. Avoid debt like the plague (especially as a consumer).

    We have been wired to consume. Instead serve. If you own a business you get to deduct your expenses tax free as a consumer you don’t. Create a business that services something that people won’t or be a part of this with someone else. Help others.

    My 2 cents for today.

  6. The amount of interest you are going to make with your “take the financing, pay it off interest free” scheme is so pitiful that it isn’t worth bothering with, IMHO.

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