The business of credit

I am not a great believer in taking on debt. I don’t like it.

When I was 12, I read David Copperfield and I still remember some pearls of wisdom from Charles Dickens that went something like if you earn 20 pounds and you spend 19 pounds, 90 shillings, you will be happy but if you spend 21 pounds, you will be miserable forever. That statement has just stuck in my head since. As a result, I have tried to live within my means. Hence, any instrument that makes me spend some more is something I run away from. I dislike credit cards. When I came from Singapore to the US, I virtually stopped using my credit card. I was a student and I wanted to live like that. Only cash, no credit card.

Now, I’m working and I need to buy a car and very soon, we might think of buying a home. As we surveyed the market, we found that the interest rate for us would be ridiculously high.
Reason: we do not have an established credit history in the US.
Actually, this society encourages you to have loans, otherwise you are penalized. No credit is not good- its BAD! This, for me, is counter-intuitive. The fact that I dont have a loan is working against me here. To get a low interest rate, I should have actually taken a loan, paids some money off thereby proving that I have the capability to repay.

This is a delicate balance. When do you know how much you can afford if you can always have credit? When do you know you have gone over the edge? Not by abstaining. This is what I am doing and am penalized for it. You have to get into the system, get loans that you well know you can pay off, then systematically start paying them off. If there is something that comes along the way, you just need to resist despite the fact you can afford it. And how many of us can do that?

Charles Dickens wasn’t wrong. But financial planning isn’t as simple as it used to be centuries back. We have got to make our own circle of material need even if the credit world could afford us something more. Better safe than sorry!