On the other hand, we have the Banks and other financial institutions who have excess cash laying around (remember that relatively new source of revenue for the banks: Government Insured Home Loans). And like any business, are always trying to improve their bottom-line and are willing to make loans to people who agree to repay and are a good risk. This consumer debt was at first secured by the items purchased and , in some cases, still are, such as automobiles and boats. Eventually, this practice lead to unsecured loans and the day of the credit card had arrived. Of course, the consumer was required to pay even higher rates of interest for these unsecured loans (credit cards).
“The rich rules over the poor, and the borrower is servant to the lender.” (Proverbs 22:7)
This lead to ‘The Perfect Storm of Consumer Debt’: On the one hand, we have consumers who want stuff, such as automobiles, televisions, furniture and pretty much everything else and would like to take that item home with the minimum amount of out-of-pocket cash. These consumers were willing to pay for the item over the next few months or years and did not mind paying a bit more for the use of the bank’s money.
The banks soon figured out that if people were willing to pay interest for the use of the bank’s funds to purchase a home, then perhaps people would be willing to pay interest, at a slightly higher rate, for the privilege of purchasing consumer items now and paying for them down the road.
We have become a culture seeking, even expecting, immediate gratification. It was not that long ago that if you wanted something, you had to pay for it with cash; personal credit was not widely available to most of us. We had to save until we had sufficient funds to pay for the item we were purchasing (unless a family member or friend was willing to make us a loan – most folks didn’t have that option). After World War II, the government started guaranteeing VA Home Loans to returning veterans. This made it possible for people to buy their home and pay it off over the next 20 years. This lead to an enormous economic boom in the United States and the practice soon became wide-spread among non-veterans as well.
This might be a good time to define ‘Truth’. The American Heritage Dictionary, Second College Edition, copyright 1982, 1985, 1991 published by Houghton Mifflin Company defines ‘Truth’ as: (1) Conformity to fact or actuality. (2) Fidelity to an original or standard. (3) Reality; actuality. (4) A statement proven to be or accepted as true. (5) Sincerity; integrity. (6) God.
Key Concept No. 2 (KC2): Consumer Debt is the Kiss of Death. You must eliminate all debt as soon as possible. Consumer debt, read as ‘credit cards’ are the “Kiss of Death” for your financial well-being.
Reference/Resource: “The Book of Proverbs” written primarily by King Solomon some 2,900 years ago. This collection of 31 Proverbs covers almost all aspects of life and is an excellent source of reference on how to live and behave. How to handle money is one of the key topics throughout Proverbs.
Key Concept No 1 (KC1): Spend less than you earn over a long period of time and you will become wealthy. You absolutely must live within your means; more specifically, you must spend less than you earn over a long period of time to become wealthy or financially independent.