For two generations Americans have forgotten what it means to save money. The concept of credit introduced in the late 1960’s ushered in an era of buy-now-pay- whenever and the plastic mentality soon became deep-seated in modern day consumerism.

Food for the wallet
Creative Commons License _Dinkel_ via Compfight

The Diner’s Club was the first to trial the idea of shopping on credit and the overwhelming success made it possible for American Express, MasterCard and Visa to establish a national network of revolving credit cards in a fast growing consumer market. This way, first generation card holders (our parents and grandparents) did not have to save up for a TV set, a trip to Europe or to buy each other expensive gifts on occasion.

What’s more, card holders didn’t feel as though they were paying in installments. The minimum deposit each month was next to nothing and credit kept rolling, or rather revolving, in a way that it seemed that they got everything almost for free. In those days, card holders were more cautious and promptly paid the debt at their convenience, using bonus money from work as in most cases there was a rational credit limit.

The credit card stranglehold

Second generation credit card holders discovered they could buy anything using a major credit card, and in fact not having a credit card could actually be a problem for anyone wanting to rent a car, make reservations for a hotel room, book their air tickets, or pay for items online.

For most Americans enjoying the advantages of a booming technology and a rapidly growing financial sector, this just wouldn’t do. Multiple cards together with exclusive gold or platinum packages were combined with personal loans and several products aiming to enhance consumption. There is nothing wrong with improving your way of life if you can afford it, but buying on impulse makes you dismiss your budget – your only sense of balance – and you inevitably spend more money than you have.

The double-dip recession the US economy has suffered over the last five years should be a wakeup call to third generation credit card holders. It is time we accepted reality and faced the fact that spending on credit is likely to create more debt unless you use your credit with a clear head. Credit is not something you should fear, but you must be sensible on how you play your cards.

Limit credit spending

Set yourself a limit and do not go over it. If your debt is at a reasonable level, keep it that way by preserving a steady cash flow. Whatever you do, don’t let yourself go over budget.

Transfer all your credit into one account. This will give you a clear picture of what your total debt amounts to, plus you will have more negotiating power when you seek better terms of payment.

Rest assured your debtors will go out of their way to help you pay back what you owe them – in fact it’s good for business to constantly keep you in debt. However it is in the best interest of both sides to see your debt fall at a manageable level and stay that way.

In today’s economy cash is not only king, but also best tutor for spending management. Try paying in cash for groceries and gas – even for just a month. Then, before you start your festive shopping, hold your horses and use cash for your Christmas gifts too. You may not be able to get what you wished for, but it’s the thought that counts to those who count!

Credit is a great concept and millions of Americans will vouch for that – but it takes a little bit of credit management to understand how it can really work conveniently in your favour. Learn how to spend what you can afford on credit, and try to use cash more often – the balance between the two is the best option for successful debt management.

Ian Hepworth is the director at Funding Solutions UK which was founded in 2007 with the intention of steering businesses through the credit crunch by helping them to source suitable forms of finance. With over 18 years experience in the finance industry, Ian is a master marksman that constantly hits the money bullseye for anybody seeking financial advice.

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