How to Evaluate Consumer Credit Decisions (1267)

Before you decide to use credit, think carefully about the pros and cons for a particular purchase. Can you afford to "buy now and pay later?"

The major costs and disadvantages to using credit are the finance charges, lost interest on the savings and possible loss of a discount you might receive for paying cash. Remember, you pay for the service of using someone else's money to make your purchases.

When you use credit, you are committing your future income to the present purchase. Unexpected events may change the amount of income available in the future to meet these debts.

Research shows that it is easier to overspend and may be more difficult to meet other obligations when using credit. Using credit also adds to the cost of your purchases and may force reductions in other expense categories in order to meet credit obligations.

On the positive side, credit can help families meet their goals. Credit enables consumers to purchase goods they would otherwise have to postpone if they were to use cash, such as cars, washing machines, and other large durable items.

How do you decide if you can afford to use credit? Before you make any decision to use credit, ask yourself these questions:

- Do I really need this and do I need it now?

- Is having it now worth the extra cost of using credit?

- Can I make the payments each time?

- How much will the finance charges be? Look beyond the monthly payment.

- What must I give up to pay for it?

- Will I risk owing so much money that I won't be able to meet an emergency?

- Most important, how much debt do I presently have? Can I realistically add another debt to my financial obligations?

Watch for danger signals that you may be carrying more credit than you can manage, such as you:

- Are out of money before payday.

- Find it necessary to use your savings to meet monthly obligations.

- Pay only the minimum amount due each month on your credit cards.

- Are unable to save money.

- Borrow money to pay creditors.

- Have defaulted on regular expenses and/or credit payments.

- Have more than seven creditors.

For more information on this subject, Please visit the College of Agricultural Sciences Publications Web site.

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