The use of credit- Excerpts of the book "Finance for dad"

Financing is a fundamental tool in the management of money and construction of wealth, but it should be well administered in order to obtain benefits. A badly-administered loan can easily lead to bankruptcy.

 When is it more convenient to use credit?

To acquire high-value assets. Those that are not affordable otherwise. The typical examples are the home and the car. For a family, in the first years of labor activity, it is usually the only way to acquire these essential goods.

For education. In all countries, there are student financing centers that are easily accessible. These are very useful loans from both financial and educational points of view. Young

people begin to take responsibility for their own education, which teaches them the value of money. Therefore, I suggest encouraging them to make good use of educational loans even

if the family can afford to pay for their education.

To invest. With the objective of starting a business, expanding an existing one, or perhaps as working capital. There are business loans that can also be assumed individually in order to increase personal or family wealth.

For convenience. When you can get financing without interests or a lower interest rate than the one you are getting from your invested money; or when you purchase or hire services on which you can postpone payments, without having to pay interest.

When not to use credit? 

For daily expenses. It should not be used for expenses such as groceries, services, maintenance, clothes, gifts, gas, etc. All these are items that must be included in a budget and should be paid immediately. If you, eventually, have to borrow money to satisfy some of these items, it could be interpreted as a negative symptom. It means that something is not functioning well in your administration. You are probably spending more than you are earning. Pay attention to this symptom and regain control of your finance.

Credit cards. They are very practical to postpone payments, but they should be used with caution and always with the intention of paying the total balance off as soon as the statement arrives. If eventually you use them to be financed, and you pay only the minimum required, you will realize that the interests are high. In fact, credit cards have the highest interest on the market. Well, actually, cards do not have the highest interest on the market…

Private professional lenders. They are, generally, along with the pawnshops, the last resource. I assume that when a person reaches this alternative it´s because he/she has already exhausted the other resources: cards, bank, family, friends, etc. It goes without saying that you should never need this type of credit. Although there are various particular situations, we think that good Personal