Credit Is Not Your Friend

I recently had a response to a post from "Bella," who asked,

Hi 'Prince': I have bad credit from about 5-6 years ago...got sick..used credit to live on...anyway..I just recently got one of those high interest credit cards to begin to build my credit again (note: I haven't paid any back on the bad credit) I am in school, adult, on a disability, it is high on the card, but I thought this would help me to build up credit again...is this wrong? ...will be looking into your blogging more.

In addition she asked,

I am in college as I said..there is a noncredit course coming up that is debt free and sounds a lot like this one..it says you can be debt free in 3-7 years..which sounds like the same system...could this be true?

Here is the response, I emailed back to her:
Bella -
Let's look at why the cash only lifestyle is really better then one built on credit.

Credit does nothing but diminish your lifestyle over time. It makes everything cost more. Yes, you probably will need a loan to buy your first home. But after you pay off that mortgage and begin saving, moving to another home should involve nothing more then selling your current home and using the proceeds to buy your next home. If you need more to make the purchase, simply take it from your investment savings. That might be hard to imagine right now, but you are going to prefer a life free from all loans, charge accounts and credit cards...and you WILL be able to do it.

Throughout my blog, I will probably repeat this many times, and in many ways, but you must understand that the idea using credit enhanses your lifestyle is a bold-face lie. That is mathematically impossible. Yes, it can appear to get you more stuff in the begining, but after a while most of your money is promised away to credit payments every month, so you end up living a diminished, rather then enhanced lifestyle.

Think about this: When someone offers you credit, they are not giving you anything. If they offer you a $1,000 Visa card, they are not giving you $1,000. They are NOT adding a single dime into your life. They are simply moving up the date at which you can spend money that you will have to earn - and they are charging you a terrible price for letting you "use" $1,000 of their money.

So the net effect is that - when someone offers you credit - they will actually reduce, not add to, the money you will have to spend over your lifetime.

Credit does only one thing: it raises the price of everything you buy with it. Credit takes more money away from you than the actual value (purchase price) of whatever you buy on credit. Usually a lot more then you think. And that extra money you are giving to the credit company is the same money you should be investing to produce your future retirement income.

People re literally giving away their future wealth, just to have things right now, instead of waiting until they can actually afford it. However; the true cost of credit is much more then they realize. So, like you (and myself) they drown in credit interest, and wake up one day, old and wanting to stop working, only to realize they can't stop - because they still owe more and more interest on more and more debt. Debt they used to buy gadgets, trinkets, and other "had to have" junk they have long ago stuffed into the attic, basement, closets and/or garage.

As for me, I want to change all that before I get old. The time is now. For you, being younger, changing your habits now, will be far better then for me. You will have more time for you new retirement savings to grow bigger, allowing you to have more to retire on. But, you must start today.

As for the 3-7 years, I again ask who teaches is the course based on? If it's John Cummuta's, who teaches everything paid off, including the mortgage in 5-7 years, then yes it is possible. Even Dave Ramsey, says you should be able to pay everything, EXCEPT the mortgage off in 18 months or less. It is all just a matter of becoming motivated and applying yourself, and not taking out any more credit whatsoever.

Basically to answer your first question, in short, yes it is bad, living on credit will NOT get you ahead ever.