Avoiding Credit Disasters

Credit disasters can arise out of a number of factors. Avoiding a credit disaster is a matter of planning and luck. However, proper planning can increase your luck factor considerably.

The right credit strategies are rooted in understanding what is important in life. It is easy to gain a massive amount of debt by purchasing things you don’t really need, and may later find you don’t even really want. 

A good habit is to avoid impulse shopping and really look at something and deciding if its something that will bring you pleasure or meet more fundamental needs, not just over the course of a day or two, but over the course of months or years. In evaluating a purchase, particularly one done with credit, where the costs increase considerably due to interest, you should think about whether there is something more productive you can be doing with that money. You should also look a bit ahead and evaluate if your ability to repay the debt is realistic. 

In the cases of accepting large debt loads, such as buying a car, a house, or investing in a college degree you need to ask yourself several questions. These basic questions, if answered honestly can minimize your risk in a dangerous situation. These same questions should be asked of any purchase.

• 1. Do I need this thing?
• 2. Why am I buying this, is it because I actually have a definite need for it in my life, or is it a want that will quickly pass? 
• 3. Will I gain long term satisfaction from owning this item, or will I end up getting rid of it soon.
• 4. Is the purchase worth the amount of hours of my life I will have to sacrifice working, to pay for it.
• 5. Is there something I should consider buying instead that better meets my needs, and makes more practical sense?
• 6. If the purchase is an investment, can I be reasonably certain that it is a sensible investment. Will I gain more out of it over the long run than it will cost me. Sit down and do the math if necessary.
• 7. Am I buying this to impress someone else or because it helps me attain my goals in life. If you are trying to impress other people, are you doing that at expense of your own self interests.
• 8. Should I wait until I have the cash on hand to buy it. How many hours of my life will be spent covering the interest payments on the item. Is it worth it?
• 9. Will the purchase tangibly improve my life, or will it just be an extra thing to cart around.

As a general rule, if you see something that you want and are tempted to use credit to purchase it, wait a week or longer and then make the decision. This will give you time to consider other options and decide whether it is a want or a need. 

Credit Disasters Staff