Are Your Credit Habits Leading You to Financial Ruin?
For better or worse, credit is the lifeblood of our economy. Everyone from businesses to consumers use credit on a daily basis. Credit cards are the easiest form of credit to use, but come with the risk of over-borrowing from the future to satisfy the wants of today.
Does your lifestyle match your income? According to a new poll from the National Foundation for Credit Counseling, 22 percent of respondents say that if asked to live on a cash-only basis, they would have to make significant lifestyle changes — a clear sign that spending is too high or income is too low. Furthermore, 32 percent say they would have to make some changes, but would basically be fine. Another 20 percent of people claim they could not make ends meet without the use of credit cards.
“Credit should be used as a convenience, not to supplement income,” said Gail Cunningham, spokesperson for the NFCC. “It is a warning sign if a person is not able to manage his or her daily lifestyle without the use of credit cards. People may feel as though they have no alternative to using credit to supplement their income, but that is a dangerous habit that can lead to financial ruin. No one ever intentionally digs a deep financial hole, but breaking one of the basic rules of personal finance – spending more than you make – is not likely to have a positive outcome.”
Similar reports indicate that credit cards are making a comeback. Last month, a report from Equifax revealed that the nation’s twenty-five largest metropolitan areas all increased credit card debt in the second quarter compared to a year earlier. During the same period last year, seven of the top twenty-five metro areas experienced declines in credit card debt.
Earlier this week, the Federal Reserve reported that Americans increased their debt by a seasonally adjusted $26 billion in July, up from an $18.8 billion gain in August. It easily beat expectations and represented the largest monthly gain in dollar terms since November 2001.
Revolving credit, which mainly consists of credit card debt, rose $5.34 billion to $880.5 billion, a sharp increase from an upwardly revised $1.81 billion gain in June. Overall, consumer credit totaled $3.24 trillion in July.
More from Personal Finance Cheat Sheet:
- 10 States Where Home Prices Are Still Skyrocketing
- How Many Americans Are Clueless About Their Credit?
- 10 Worst College Majors for Today’s Job Market