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# Ups and Downs of the Credit Culture

Using credit isn’t financially unsound as long as it’s not used unwisely or to excess. As a matter of fact, the availability of credit has become an important consideration in many large purchases, for both families and businesses. Credit accessibility helps to sustain many companies and jobs while at the same time making life more pleasant for individuals and families who have the financial discipline to use it wisely. Some potential advantages of the judicious use of credit are:

- It allows you to acquire and enjoy the use of expensive items. Without the availability of credit you would have to save for months or even years in order to buy big-ticket items, such as cars or homes.
- Credit can provide you with an emergency source of funds. Nearly everyone has encountered situations in which they had insufficient money on hand to take care of some pressing need, such as a new transmission for the car or a new furnace for the home.
- Borrowing can result in tax savings. Interest paid on many types of real estate loans can be deducted at tax time, lowering your overall tax bill dramatically. And businesses can deduct nearly all of their interest expenses in calculating their income tax liabilities.
- Some credit sources permit you to buy now and pay later without charging interest. This allows you to retain control of your money for a longer period of time while still enjoying the use of the purchase. So long as you aren’t charged any interest of fees, it’s to your advantage to delay paying for as long as possible.
- Credit allows you to travel or shop without the necessity of carrying large amounts of cash. Keeping substantial reserves of cash puts you at risk that the money will be lost or stolen, with little likelihood of recovery. Carrying large sums of money can also put you personally at risk of physical harm.
- Lenders sometimes offer customers special benefits at no additional cost. Competition among creditors, especially those that issue credit cards, can be very intense, causing lenders to offer a variety of incentives. Frequent flier points, insurance coverage for rental cars, and warranty extensions on goods purchased are just a few of the extras that borrowers can receive.
- Credit purchases can provide leverage in the event of a problem with the item or service. Once a business has all of your money, there may be little incentive for it to ensure your satisfaction. Withholding payment on a credit card purchase, which you can do if you have a legitimate dispute that the business fails to rectify, may put you in a somewhat better position for negotiation purposes.

On the other hand, potential disadvantages of credit usage include:

- It creates an ease of buying goods or services that ordinarily would not have been purchased. Paying cash makes clear the point that buying one thing may preclude you from buying something else. Paying for purchases with credit, however, sidesteps the inherent discipline imposed by cash purchases.
- Borrowing generally increases the acquisition cost of a purchase. Interest and fees that are imposed by lenders result in more money paid for the goods or services obtained. The higher the interest rate and the longer the payment term, the more the credit adds to the final cost of the purchase.
- Easy credit availability can result in individuals, families, and businesses being mired in debt, making it impossible to remain current on their loan obligations. More than a few marriages have collapsed under the financial pressure caused by credit misuse or abuse.
- Habitual credit use allows lenders to monitor your spending habits. Paying cash doesn’t leave a data trail that others can follow to learn how you spend your money.

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