Can You
Live Without Credit & Debt?
Everywhere you go, and everywhere you look, credit and
debt is prevalent in our culture. If you go to the mall, you can see that the
majority of purchases are being paid for with plastic. In car dealerships, 95%
of all purchases are financed. Even in the home, debt is invading our inner
most lives. When we watch Television, every other commercial entices us with
luxuries that we don't need and can't afford, but yet they make us feel like
we 'have' to have their item to make us fill fulfilled. Also, with internet
shopping so easy and convenient, we can quickly and easily go into debt
without having to leave the comfort of our own homes.
However, at some point I have to ask, "Is credit and debt
really necessary?" Can you get by in life without ever having used a credit
card? Can you survive without borrowing money to buy a car? Could you pay for
every single purchase in your life with cash in though our culture makes it
extremely difficult for you to do so?
I believe that it is possible. Difficult, but possible.
It can be done, but it would take a tremendous amount of discipline, some
sacrifice, patience, and perseverance. Below are four critical areas where
most people falter and splurge with the intention of paying back at a later
date with easy monthly payments:
Shopping - Credit cards are convenient, there is
no doubt about that. They are safer and less bulky then a wad of cash, and
easier to use then writing a check in the check-out line. However, somewhere
along we have lost the connection where we understand that our credit cards
equal money. Instead, they have become something else; most people simply
don't comprehend that when you buy something with a credit card that it has to
be paid back, in full, and usually with a lot of interest on top of it. To a
lot of people, credit card bills are simply another fact of living, like
receiving a utility bill, or paying the rent. It is just another bill that
comes due every month, the minimum amount is paid, and we continue to go
deeper in debt.
Restraint needs to be applied when shopping for
anything. I'm not just talking about a trip to the mall, I mean anywhere.
Rather you are shopping on the internet, planning a wedding, or buying new
tires for your car, you need to ask yourself two questions:
Do I really need to buy this? - If you don't
need to buy it, you probably shouldn't. I'm not saying that you shouldn't
satisfy any of your wants, just that you shouldn't go into debt to do so.
If yes, can I get it cheaper somewhere else, can I
buy it used, or can I save if I buy it at a later date? - For the items
that we need, shop around to be sure that you are getting the best price. It
may be worth driving a few extra miles to save $20 on an appliance. Can
buying the item used fulfill your needs just as well while at the same time
costing half as much? Can waiting a few extra weeks for the item to go on
sale save you a bundle? Shopping at after Christmas sales can result in
drastically reduced spending.
Education - College is extremely expensive,
especially for higher degrees. It is common practice to take out
student loans to pay your way through school.
However, is it absolutely necessary? Would it be possible to work your way
through college? Receive a scholarship and/or grants? Perhaps you could take
employment that offers tuition reimbursement?
Almost always, there are ways that you could avoid going
into debt to receive a higher education. It may require some hard work on your
part, either to earn a scholarship or to pay your way through, and it may
require some extra time, but when you get your diploma you will be graduating
without any liens attached.
Automotive - For starters, it simply makes sense
to buy a used car instead of new. You
can still get a reliable automobile with years of life left in it, but you can
also save thousands.
Most people, however, believe the ads that they need the
shiny, fancy, new car with all the bells and whistles to make them happy. The
truth is, you can do without a lot. It makes much more sense to save up and
buy a decent used car for a fraction of the cost. For example, earlier this
year my wife and I were really wanting a new Honda Odyssey. We frequently
travel during the summer and, with two kids, our sedan was getting a bit
cramped and uncomfortable even though it runs and looks perfectly fine.
When we priced out the model that we wanted it was going
to be around $30,000. Now, if we financed this at 7.9% our payments would be a
little over $600 a month for the next five years and we would have paid out
around $36,500 in total payments.
Instead, if we wait and manage to live with our car for
another three years, we can put about $400 a month into a savings account,
accumulate $15,000, plus our trade-in value, and go buy a nice used one with
cash.
Housing - This one is a little bit harder. Hardly
any of us can afford to go out and buy a house with cash, especially if you
are young and just getting started. If it is necessary to borrow to buy, make
sure that you are borrowing as little as possible. This can be achieved by to
ways:
Don't buy more house than you need - Do you
really need a four bedroom, three bath house if you are single and living
alone? Do you need five acres if you aren't a farmer? Do you need a three
car garage when you only drive a Volkswagen? Buy what you need, not what you
want.
Save as much as possible to put down on the house
- By living frugally for a few years you can save big in a short amount of
time. It really is not unreasonable for someone in their mid to late
twenties to be able to put 50% or more down on a home. Also, by making extra
payments towards the loan principle you can save thousands. Consider taking
out a 15 year loan instead of a 30 and
paying off the home in half the time.
Keep in mind, if you start living debt free and teach
your kids to do the same, you may have enough accumulated in savings so that,
when your children are old enough to start thinking about buying a home you
could be in a position to buy the house, or part of it, for them. Then,
instead of your children making mortgage payments on their own house, they
could begin putting that money into savings so when their kids are old
enough to buy a house...
