Written by on April 23, 2019

To Pay With Money Or With Credit?

Credit

The data we have known over the past few months show that household borrowing has been rising at the same time that the savings rate is at a worryingly low level.

Never Forget The Impact Of Interest

credit loan

In fact, consumption has been boosting economic growth, at a time when families and the economy as a whole are experiencing growing euphoria. If it is true that consumption has its aspect of necessity, it is also certain that consumption with the use of credit brings with it an interest bill (and now, of taxes) that ends up weighing heavily in the budgets of Portuguese families.

In this context, we usually warn of the need to consume with money. If we need that purchase, we must do it for money, and pay it off. In this situation, we associate the pleasure of the purchase with the pain of the payment, which helps us to be more judicious and to think twice about the effective necessity of the purchase.

Always Buy The Money

It is curious to note that the power of this strategy is little known. In fact, several studies (some older than 10 years) show that card purchases, especially credit cards, lead to higher expenses. In some cases, our propensity to spend doubles.

And the reason is simple: we delay the consequence of consumption and only feel its impact after a few months (and the “soft benefits” that turn out to be authentic nightmares). A posture of prudence has never harmed anyone and some conservatism in consumption may be advisable. As economic theory says, it is in time of growth that we must create reserves to fill the times of crisis.

What to do?

In moments of economic growth we must take advantage of the dynamism of the market to find sources of cost cutting. Thus, we can choose to transfer housing credit and thereby reduce the spread. We can transfer insurance to more aggressive insurers. We can also consolidate credits and take advantage of lower interest rates (do not forget that the consolidated credit has fixed interest rates, so when the EURIBOR starts to rise, you will not feel this impact.