Question: What’s the history of credit cards, and how do I distinguish between good debt and bad debt?
Answer: Long before we ever had credit cards and other lending instruments, people have wondered if there is such a thing as good debt. There is, in fact, a simple answer to this… No!
There is no such thing as good debt. Debt is debt. If you ask any reasonable person whether it is better to be in debt versus completely out of debt, the answer is obviously the latter.
"If you want to know what a man is really like,
take notice of how he acts when he loses money.”
- Simone Weil |
Any person that says differently is probably a lender and trying to get you to sign a loan document or credit card agreement.
Although it may sometimes be extremely difficult to do, debt should be avoided at every turn. If you already have large debts such as a mortgage, car loan or student loans - it will take some time to free yourself from those debts. However, it does not have to take you 30 years to do so.
Getting completely out of debt is not impossible. It may take some time and hard work, but the rewards are worth the effort and sacrifice.
One can examine the changes our society has made in terms of thinking about debt just through the recent history of credit cards. Less than 50 years ago it would have been considered shameful to buy on credit.
Buying on credit indicated a lack of money and/or character, and it also led to suspicion as to whether or not a person would actually pay back the money owed. Formal agreements often consisted of only a handshake and a promise to pay back. Not staying true to your word was considered disgraceful.
Now, the average United States household receives 8 new credit card offers in the mail each month. Personal bankruptcies continue to surge to unprecedented numbers.
College students receive offers in their mail every few days, and almost every campus exposition has a booth offering trinkets like cheap t-shirts that are free when you sign up for a card. The average student now graduates with a total debt load never before experienced.
Credit card companies push their products on us through the television and they showcase their new and “amazing” rewards programs, such as cash back, mileage and points, to convince us of the “value” of gaining credit.
The offers focus on the prestige associated with having access to credit, but they fail to educate the average consumer about the perils of mounting debt.
The history of credit cards alone tells a sad story on the financial habits of our modern society. Many people make the mistake of assuming that good debt is equated with having a high credit score. Don’t be fooled. There is no such thing as “good debt”.
Some experts will have you believe that debt is good if it provides a path to grow your business and/or expands your ability to increase your product and related profits.
Again, don’t be fooled by this line of thinking. While it is true that many new businesses are started from money from a small business loan, credit cards or a promissory note - the risk of failure greatly increases with the added pressure of making monthly debt payments.
The better solution is to save up before starting a business. Pay cash upfront and your chances of succeeding in your new business will dramatically improve.
Don’t become another sad statistic. There is no such thing as good debt – there is only debt.
The history of credit cards and the countless lives that have been ruined due to debt should be a persuasive argument to anyone who is considering taking out a loan or financing a new toy.
Pay cash, and live on less than you make. Do this and you’ll never look back on your financial life with any regret.
"The only point in making money is,
you can tell some big shot where to go."
- Humphrey Bogart |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
