A Blistering Rebuke of “Easy Credit” (Why It’s So BAD for You)

Credit isn’t a problem. In fact, credit can be a powerful asset, when used properly. We haven’t become a nation mired in debt because of basic credit; we have gotten into this situation because of “easy credit” and the responsibility that comes with it (that we’ve neglected). 

What is “easy credit?”

Not to get overly complicated, but easy credit is the product of an increased supply of money into the financial banking system. This has made it easier for people to obtain credit they don’t need.

Please don’t get me wrong, financial institutions, credit card companies and many other predatory lenders have seized upon the public’s insatiable appetite to spend money and have turned the meaning of the word “credit” into the fallacy which it has become, “free money”. 

The overall purpose of easy credit was to stimulate economic growth initially. While that can lead to an increase in inflation, it is the opposite of what is commonly referred to as “tight money.”

In our modern society, easy credit has made it possible for people of lower financial means to purchase items — whether they are necessities or luxuries — when they don’t have the cash available for it.

What has easy credit done?

As a society, we have become a consumer agent. Just about everything you see and do is focused on spending money. When you consider that consumer spending makes up 68% of the U.S. economy, the government is incentivized to keep this party going as long as it can, even to the detriment to its citizens. Otherwise we risk economic collapse. 

Most things are purchased on credit these days. Whether it’s a home, car, furniture, vacation, jewelry, or anything else, the vast majority of purchases are done using some form of credit (ie. a loan).

This is one of the key reasons why nearly 8 in 10 full-time working American adults are living paycheck to paycheck (CNBC); they spend just about everything they bring in. The amount of income they make does not matter.  Most people spend more than they bring in.  Even if they don’t literally spend their entire paycheck one month, the rest will be going out to pay down those debts accrued along the way.

It will likely include a mortgage payment, a car payment, and credit card payments. According to Nerd Wallet, annual US household debt has increased by more than 34% during the past five years.

The average household carries approximately $136,355 in total debt. Keep in mind that home ownership isn’t the key factor here as many people still rent and are unable to buy a house.

• The average mortgage in the United States is $189,586.
• The average auto loan amount held by each US household is $27,804.
• The average US household carries almost $7,000 in revolving credit card debt; that does not include charge-offs, closed accounts, and other debt values that are increasing along with all other debts.
• Student loans account for more than $1.5 trillion owed by all US citizens, with $46,822 being the average held by a US household.

Now, keep in mind there are numerous households that hardly have any debt at all and many that don’t carry any student loans, so when you factor in those issues, the households that are grappling with debt are overwhelmed.

Much of this has been due to the process of easy credit and lack of financial awareness.

Why is easy credit the problem?

It’s not. While the title of this blog is a blistering rebuke of easy credit, it’s not about easy credit itself.

We might compare this issue with another common one that carries a lot of political emotion and weight: gun control. A weapon, by itself, sitting idle in a storage locker is harmless. Put it in the wrong hands and it becomes a deadly assault weapon. Whether that’s a gun, knife, or something else doesn’t really matter; the point is this: just like with weapons, easy credit in the wrong hands can cause tremendous damage.

And it has.

It is often said that “the road to hell is paved with good intentions.” That is certainly true. Easy credit was developed to help stimulate the economy. The purpose was generally a noble one, but without financial education and training, people who suddenly had access to what had previously only been reserved for the financially well-off and those proven to be fiscally responsible was now available to just about everyone, including college students who didn’t have jobs.

My personal introduction to credit and its devastating consequences happened on my first day of college. As I strode across the student center I was greeted by five credit cards booths that couldn’t wait to give me “free” money. Plus, if I signed up immediately, I got a free t-shirt. ‘Whoa!’ I thought, ‘Did I just win the lottery?’ That was the beginning of a painful lesson I had endure for a very long time. What I quickly realized was that brand new bike I purchased with my shiny new credit card was not worth the pain and suffering of paying it off for many years. 

Without a strong understanding of finances, financial responsibility, the importance of paying down debts, interest rates, the impact of a poor credit score in history, and more, millions upon millions of Americans have gotten themselves into extreme financial dire straits and feel completely helpless to get out of it.

That is why the debt problem in this country is getting worse, not better.

Should we do away with “easy credit?”

No. Not necessarily. In fact, doing away with accessibility to credit and loans would do far more harm to people in the long run and would likely cripple the economy. 

However, we need to focus on the situation at hand: our mounting debt and the “why” behind it.

If we, as Americans and individuals do not come to terms with the debt problem we face, there will be a correction. That forced correction — either due to a stock market crash, lost jobs and tax revenue, a pension crisis, social security insolvency or something else — is going to be far more painful than any of us can possibly imagine right now.

Imagine waking up tomorrow at the crack of dawn, heading down to your local supermarket, and waiting in line for hours to get your rationed amount of bread and eggs and milk, all for the whoppingly low price of $145.

You think I’m exaggerating? It’s happening in numerous places around the world. While we are considered a capitalistic society, it’s capitalism on the surface when you consider how much government has forced their way into our lives. And based on current sentiment, this government control of our wallet is only going to get worse. And for those who think more government is the answer to our problems, I’m often reminded of what my Dad always said, “be very careful what you wish you…you just may get it”. 

Sadly, we are dependent on government spending far more than we may realize. We are also mired as a country in almost unfathomable debt. $22 trillion and climbing with no end in sight.

No, the solution is not to end accessibility to credit, but rather help people understand what credit is and what it’s not 

What is credit?

Credit is, essentially, an “I owe you.”

Too many people receive credit cards, mortgages, and other loans (including student loans) with the general idea they have to pay this back. However, they don’t think of it as an IOU.

They think of it as money that magically appears. They think they actually own the items they haven’t yet paid for. Furniture, TVs, clothes, iPhones, jewelry bought on credit cards, sure, they may ‘own’ them in a legal sense, but not their car, home, boat, or other items when there’s still a loan on it.

It’s a loan. Not money. If you pay off the loan quickly, you will essentially buy whatever item it is for the sticker price. If, on the other hand, it takes you five or 10 years to pay off your credit card for a $1,000 flat screen television purchase, you might very well have paid over $2,000 for that TV.

Consider an automobile loan. If you take out a $20,000 loan to purchase a brand-new car (which depreciates by thousands of dollars the moment you drive it off the lot), and take 60 months (or five years) to pay it off at 8% interest, you will have paid back $4,433 in interest.

That’s if you don’t miss a payment. Yet, with nearly 80% of full-time working adults in the United States living paycheck to paycheck, that’s one emergency, an unexpected job loss, or some other crisis away from missing not just one, but several payments. Suddenly you could be tacking on another $1,000, $2,000, or even $5,000 to that.

Living paycheck to paycheck also means that if you suddenly and unexpectedly lose your job that car could be repossessed, or your home could be foreclosed on and everything you paid into it up to that point could very well be lost.

Over the past 25 years in working with thousands of individuals of all walks of life, income and net worth, you’d be shocked to know how many people experience this. 

How do we solve this problem?

A lot of people think that getting into a debt repayment program is the solution. That can certainly be beneficial, but it is a short-term solution.

If these programs, financial courses, and special events that have popped up in the last couple of decades actually worked the way they promised, the problem would not be getting worse every year.

But it is.

We need to get down to the core of the issue: our beliefs.

Our beliefs are programmed into our subconscious mind and run nonstop, 24/7. They are essentially on autopilot and you don’t even know they’re happening. It’s these beliefs that dictate what we think, how we behave, what we do and ultimately who we become. When you have beliefs that are driving dangerous financial decisions, as so many of them do, it won’t be long before you find yourself in a world of hurt – or as I say, living on “Pain Island.” 

For example, when you believe that a luxury item is a necessity, your language changes from, “I want” to “I need.” And you’re willing to get yourself into debt to ‘have it.’  It’s almost beyond your control to resist the urge to purchase that item because that belief is in total control. 

Your belief system has developed into making you think that most items you purchase today are necessities when, in fact, they are most often luxuries.

Effective million-dollar marketing campaigns have helped to create this destructive belief system that are not only ruining our financial lives but our lives in general.

Sadly, as I’ve written extensively before, the school system has done nothing to prepare us for the dire consequences of our financial decisions.  It’s imperative we do a much better job of understanding our finances, debt, interest, and what credit actually is.

I take people through this process of what I call Belief Discovery and it’s amazing to see the revelations that people have when they realize they are basically living like robots controlled by these harmful beliefs they’ve been carrying with them their entire lives.  When they finally realize that their beliefs are no more than opinions, not truths, that’s when the light bulb goes off and the transformation begins. 

If we are to overcome this massive debt problem in the United States, we need to confront our beliefs, understand where they come from, how they developed, and why we need to change them first.

Anything else will be just like putting a Band-Aid over a gaping wound and hoping for the best.