No. of Recommendations: 4
Part of the problem in the US is a lack of education about the proper use of credit. Credit, in my mind, is the same as cash - just offset by a known time interval. It is a contract which is non-optional and which, if broken, is subject (rightly) to significant penalties for breaking your word.
When I was in business, almost all of my customers purchased on credit (our standard terms were 30 days). Almost all of our purchases were made under the same terms. As long as everyone plays by the same rules, life is beautiful. I found it very beneficial to pay my vendors on time, as over time once they realized this could be depended on, it give me an almost unlimited line of credit at the vendors, as well as better prices than a company my size should have expected. On that side of the balance sheet, I benefited by the fact that most firms ignored their credit terms. On the other side, various classes of customers were notoriously slow payers (hospitals, lawyers, doctors, general contractors come to mind) and I basically fired them as customers and specialized in government work (government agencies generally paid on-time if you did the proper paperwork and excelled on providing what the ordered).
So, for me, while I never borrowed money in order to pay for a capital item over time, utilizing creit was an integral part of my business life.
In the more than 50 years that I have been using credit cards; I have never paid a penny in interest. From my standpoint, credit cards provide three major functions:
Purchasing conveniently, but not having to carry much cash, minimizing pulling it from ATM's
Cash returned in consideration of my usage (1%-4%, depending on what the purchase is)
Taking advantage of bonuses paid in consideration of opening new credit cards (I am currently using between 2-6 new credit cards to pay off a cruise using just the bonus amounts of each - providing approximately a 15% rebate in cash and/or frequent flyer points - the cards will be closed in a couple of months). It has been many years since I've bought a seat on any flight of over a few hours in length for cash.
So, while someone looking at my payment history (zero blemishes) is happy to bribe me to chose them to provide credit, apparently no one looks at the cost of that credit history to the banks.
So, over my life, having good credit has been very beneficial, not to mention convenient. I use credit cards as if I'm spending cash - which in fact I am, as I pay them off in-full (after reaping a month of interest on the float).
People who treat credit cards as a way to put off paying as long as possible end up paying usurious interest rates and constantly end up digging themself deeper into debt. The MOST important thing to stress to someone beginning to use credit cards is that there is an obligation to pay them off on-time. If the item is large enough that you can't, then get a loan from a bank with a set (understandable) interest rate.
Jeff
