home loan finance blog
Planning for debt is one of the most important aspects of sound overall financial planning. A debt agreement should never be entered into lightly and certainly not before plenty of thought has been put into it.
Most of the time, people will consider taking on major debt fairly carefully. There are even some safeguards in place to assure that is the case.
For example, before you are granted a mortgage to purchase a home, your financial situation is investigated. The lending institution ascertains that your income is stable and that you have the wherewithal to make the mortgage payments. Before you can get a loan to buy a car, a motorcycle, or a boat, the lending institution will do a credit check to be sure that you can afford it.
For all major purchases that you make through lending institutions for which you will supply collateral and sign contracts, the safeguard for the lending institution as well as for you is that your financial situation is assessed by people who are experts in the field of credit.
Credit cards are, however, a different animal. Some people do not view credit cards as loans or as part of their overall debt management program, and that is what gets a lot of them into financial hot water.
Credit cards ARE loans…they are debts. Granted, they are unsecured debt, but they are debt nevertheless.
Anybody who has any means of income whatsoever can have a credit card issued to them. There is no safety net. Your credit isn’t checked to ascertain that you can afford to carry as much debt as your credit card limit extends.
When you are determining whether you can accept responsibility for repaying a debt, you need to remember that the balance on a credit card is a debt. The monthly minimum payment is not the debt.