The Looming Credit Crisis
It's all over the news this week -- the looming credit crisis. First we were hearing about subprime loans (those mortgages given out to otherwise unqualified borrowers, usually with adjustable rates that quick balloon beyond what the borrower can afford). Now we're hearing about credit in general.
I guess I don't understand how we got in this mess to begin with.
Let's start with the lending companies. What kind of unethical decisions are being made in their conference rooms? Why give mortgages to people who clearly will not be able to afford it? Why issue credit cards with limits beyond what people can pay?
Certainly there are emergency situations where perhaps these decisions are wise, but the current crisis is not due to the emergency situations. It almost appears that the banks are trying to ruin the financial state of those already at risk.
Then there are the borrowers. At a young age, I learned that ones home costs should not exceed 30% of their income. It seems that mindset has gone to the wayside. I know that there are areas where real estate is extremely expensive. The DC area was like that when I lived there. But there are still some more affordable homes to be had. They may not be in the best neighborhood. They may not be big. They may require a commute. Heck, it might even be a simple condo. But if that's all that one can afford, that's all one should buy.
Otherwise, there's nothing wrong with renting. In expensive cities throughout the world, high percentages of people rent. If you're single, share an apartment or a house. But don't go beyond what you can afford.
Again, it's not just about real estate though. It's about credit in general. It starts as young as college. Even back when I was attending many years ago, we unemployed students were bombarded with credit card applications. How did those banks expect the students to pay the bills? It's just setting people up for credit failure.
However, the ultimate responsibility is on the individual. No one makes anyone accept a credit card offer. No one makes anyone purchase anything. We are all responsible in the end.
Growing up, my parents also taught me that if you can't pay it off at the end of the month, you can't afford it. Period. It doesn't matter how much you want that LCD HDTV or the latest Wii system. It doesn't matter how much you want the latest new release, new furniture, clothes... anything! If you can't afford to pay it off at the end of the month, you can't afford it.
Somehow we've lost that mentality today. Minimum payments are so common, and it takes YEARS to pay things off that way. And usually for things we really don't need.
Certainly there are situations where we must reach in to our line of credit. Medical emergencies are a great example. THAT is what credit is really for -- emergencies.
I think many people in our society are living above their means. We see our success as being based on what we have. We think we deserve all the latest and greatest. We really need very little of it.
If we all could just remember, "30% of your income to home expenses", and "If you can't pay it off at the end of the month, you can't afford it", we'd be taking a big step in the right direction.
I guess I don't understand how we got in this mess to begin with.
Let's start with the lending companies. What kind of unethical decisions are being made in their conference rooms? Why give mortgages to people who clearly will not be able to afford it? Why issue credit cards with limits beyond what people can pay?
Certainly there are emergency situations where perhaps these decisions are wise, but the current crisis is not due to the emergency situations. It almost appears that the banks are trying to ruin the financial state of those already at risk.
Then there are the borrowers. At a young age, I learned that ones home costs should not exceed 30% of their income. It seems that mindset has gone to the wayside. I know that there are areas where real estate is extremely expensive. The DC area was like that when I lived there. But there are still some more affordable homes to be had. They may not be in the best neighborhood. They may not be big. They may require a commute. Heck, it might even be a simple condo. But if that's all that one can afford, that's all one should buy.
Otherwise, there's nothing wrong with renting. In expensive cities throughout the world, high percentages of people rent. If you're single, share an apartment or a house. But don't go beyond what you can afford.
Again, it's not just about real estate though. It's about credit in general. It starts as young as college. Even back when I was attending many years ago, we unemployed students were bombarded with credit card applications. How did those banks expect the students to pay the bills? It's just setting people up for credit failure.
However, the ultimate responsibility is on the individual. No one makes anyone accept a credit card offer. No one makes anyone purchase anything. We are all responsible in the end.
Growing up, my parents also taught me that if you can't pay it off at the end of the month, you can't afford it. Period. It doesn't matter how much you want that LCD HDTV or the latest Wii system. It doesn't matter how much you want the latest new release, new furniture, clothes... anything! If you can't afford to pay it off at the end of the month, you can't afford it.
Somehow we've lost that mentality today. Minimum payments are so common, and it takes YEARS to pay things off that way. And usually for things we really don't need.
Certainly there are situations where we must reach in to our line of credit. Medical emergencies are a great example. THAT is what credit is really for -- emergencies.
I think many people in our society are living above their means. We see our success as being based on what we have. We think we deserve all the latest and greatest. We really need very little of it.
If we all could just remember, "30% of your income to home expenses", and "If you can't pay it off at the end of the month, you can't afford it", we'd be taking a big step in the right direction.
posted by Susan | 9:22 AM
4 Comments:
I'm with you... but am late to the party. My debt ratio is way too high.... Living in crisis for several years did the trick. My current goal is to hold the line... next year to make progress paying down the debt. Sometimes (like when you are in school) you are in the debt building years.... I can't wait to be on the paying down the debt end of things... but you are right. Our society mortgages our futures to pay for the present.
I believe that educational costs are an investment. You've been working really hard in school, and I applaud you for that! You should be proud!
oooooh Susan! i had to learn it the hard way. my mom only had one credit card while i was growing up but she never told me the perils of going beyond that. to make a long story short, by the time i was 31, i was twice divorced, a single unemployed mom, with over $40,000 in credit card debt. now i don't have any and i'm thankful. it was a hard lesson but most lasting ones usually are. now i'm able to teach baby bliss why she doesn't need credit cards and how to live without them.
Bliss! You are a great example for baby bliss! Great job getting out from under all that! Congratulations!!!!
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