July Financial Fitness Challenge—Get Real About Credit

Lately it seems that credit can't catch a break. All the ills of the economy seem to be laid at its feet. Some high-profile financial pundits even go so far as to call credit, and credit cards, evil.

Well, it ain't so. Credit is getting a bad rap in this recession. Credit is a tool that most of us need and use. And that's the key—to use it well. Like anything else in our lives, moderation is the key.

Make credit work for you

Credit smoothes out the mismatch between our needs and our incomes over our life spans. In your early adult years, you need a lot of things that your income can't pay for—yet. First, of course, is your education. Over a lifetime, the benefit of borrowing for your education will repay you many times over.

Where are you going to live? Many people decide they want to buy a house rather than pay rent. Home ownership isn't always the best choice, but it's a worthy goal for many. Virtually no one buys a house with cash.

Then there's transportation. In large communities, public transportation is an option, but it's not available everywhere. And even when it is, many of us like to have our own wheels—to get to work, to recreate, and to travel. Credit comes in mighty handy for this purpose.

Are you an entrepreneur or do you aspire to be one? You guessed it—you're going to need credit, too.

There are many smart and defensible reasons to use credit.

Keep your credit tool sharp

In fact, the whole point behind learning to use credit appropriately and to be responsible about paying it back is to protect your credit record. Let's face it—if credit weren't vital for most of us, we wouldn't care if our credit histories were good or lousy.

The recession finds many people in a particularly bad spot because they've been using credit but not building savings. In effect, they use credit to substitute for savings. That's why consistently building your emergency cushion—equal to several months' expenses—is so important.

If you confront a financial challenge—say, you crack a tooth and need a crown that's not covered by your dental insurance—you may well end up using a credit card instead of turning to your savings cushion to pay for it. In this example, that useful credit tool could help you get health care you need.

Would it be better to pay with cash? Sure. And building that cash cushion is a valuable personal finance goal to keep working on. Build your emergency fund by using direct deposit and automatic transfers from checking into savings and you will achieve your goal. The professionals at your credit union can help.

And until you have that savings cushion in place, it's a lot better to get that tooth fixed.

Financial Fitness Challenge

Please remember to register for the Financial Fitness Challenge. Each month we'll randomly select five winners to receive $50 Visa gift cards; we'll choose each month's winners only from that month's entries, so enter often.

ST
Susan Tiffany, CCUFC
askem@cuna.coop

Published July 1, 2009

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