Credit and Loans Essay

Who is better off: A Person Using Credit or a Person Refraining from any Loans?
Institutional Affiliation
Who is better off: A Person Using Credit Cards or a Person Refraining from any Loans?
The contemporary consumerist society is so dependent on credit cards that one would
think there are no real alternatives. The ubiquity of credit card use creates the impression that it
is not impossible have a good credit score, deal with an emergency, or rent a hotel room without
a credit card (Lusardi & Tufano, 2015). Despite the numerous benefits that come with using a
credit card to pay bills and purchase goods, a person refraining from any loans is better off.
Spending one’s money without incurring debt and cumulative interest for failing to pay in time
enhances one’s financial health. Refraining from any debt is the better option over using credits
cards because debt hampers one’s ability to benefit from other services such as insurance or
mortgages, and unanticipated life events may make one to be caught up in a cycle of debt.
Individuals using credit cards maintain their credit worthiness based on a credit score
awarded by credit card companies. A poor score is likely to affect one’s access to other financial
services such as insurance. Some insurance companies, for instance, check the credit rating of
their prospective clients. A low credit score may lead to unexpected increases on premium rates
because they assume that a low credit score implies a high-risk client. In addition, a poor credit
score may also affect one’s eligibility for a mortgage, or the interest rate to pay in case one needs
to buy a home (Ford, 2018). There is no doubt that certain unavoidable circumstances may cause
financial strain that ultimately affect one’s ability to make monthly payments for their credit
card. Refraining from credit cards; therefore, removes the potential impediment to access other
vital financial services.
Debt comes with a huge cost through high interest rates on unpaid balances. Credit
companies, for instance, charge up to 2.5 percent interest on any monthly unpaid balances
monthly (Thomas, Crook, & Edelman, 2017). The cumulative effect of such charges is that the
borrower ends up paying back more than twice they could earn off a saving with the same
amount of money. Credit card companies make money through charging high interest rates.
Living without a credit card is; thus, the surest way to avoid paying more than one should pay
when accessing goods and services. Considering that credit card use is associated with incredible
impulse buying, it predisposes many of its users to a spiral of debt that increases with high
interest charges on unpaid balances.
Proponents of credit card use may argue that they provide shopping convenience, and the best
way to make emergency payments. The counter argument is; indeed, factual in real life, but it
fails to recognize the financial burden imposed on credit card users through high interest rates far
outweighs the convenience they seek. Additionally, financial institutions such as banks have
emergency products such as a savings plan that serves as an emergency fund for account holders.
With, feasible alternatives for credit cards and other forms of unnecessary debt it is possible to
make purchases without incurring additional costs.
Individuals should choose refrain from any debt over using credit facilities such as credit
cards to meet their financial obligations. Contemporarily, one would be tempted to assume that
there are no alternatives to credit cards or any other form of debt. It is only that there are many
credit card companies in the market, and their marketing messaging often obscures the potential
benefits of living within one’s means. The long-term solution is for the growing debt problem is
for financial advisors to provide civic education on financial discipline.
Ford, J. (2018). The indebted Society: Credit and Default in the 1980s. Routledge.
Lusardi, A., & Tufano, P. (2015). Debt literacy, financial experiences, and overindebtedness.
Journal of Pension Economics & Finance, 14(4), 332-368.
Thomas, L., Crook, J., & Edelman, D. (2017). Credit scoring and its applications. Vol. 2, Siam.

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