Money is a scorecard. Nothing more.
In fact, money lives best in a black and white world. In other words, cash and carry.
Go to your local grocery store, collect your groceries, pay for them IN CASH and in that fraction of a second, the store inventory is now your dinner. No need for a credit check or an application for a loan.
I recently bought a sixty-inch TV to have a better view of my favorite Sunday football games. I didn’t want to pay with a credit card, so I set aside just enough money each month to buy the TV for cash. As it happened, when I went to buy the TV, it was on sale even better!
Paying with credit, on the other hand, is a little more complex. There are applications, credit scores and other people’s opinions about your credit worthiness. The short-term purchases become a long-term commitment which can tie up cash that could otherwise be used for other purposes.
There are three types of credit: Good, bad and necessary.
Good credit is within your control. You are paying yourself by setting aside money for a very specific purchase (my TV, for example). If an emergency comes along, the cash saved up can be repurposed quickly and easily.
Bad credit over leverages your financial resources. When a business has a bad quarter, for example, the lenders are only interested in getting their fees. That can sometimes mean laying off people in order to meet the financial expectations of the lender. The ability to set aside money in cash reserves can also be negatively impacted.
Necessary credit which, over time, can enhance your credit score, comes under the heading of big purchases. Cars and homes come to mind. Its nearly impossible to save enough cash to buy a $500,000 home outright. They need to be purchased on a contract over time.
The solution? Avoid as much bad credit possible by setting money aside for specific purchases (or purposes) in order to pay cash when possible. Enter into long-term contract purchases with as much due diligence possible.
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