Loans & Credit

Mainstream financial institutions are the best (and safest) places to borrow money.  The main reasons are that they are, by far, less expensive than alternative banking services and offer a wide variety of credit products.  For example, banks and credit unions lend money to qualified consumers to purchase a home (mortgage loan) or to access it’ home equity (loans or lines of credit), buy a car (auto loan), pay for higher education (student loan), or for use of the borrower’s choice (personal loan).  These products can play an important role in a money map and building wealth, but little for managing cash.

Credit cards, on the other hand, can be a useful tool in managing cash.  Major credit cards are widely accepted, convenient to use, and are often required to book a hotel, rent a car, or to make online purchases.  The key is to use the cards wisely and only spend what you can pay in full every month.  This accomplishes three things.  Paying the balance in full saves on interest charges; maintaining a balance can be very expensive depending upon the rate.  Next, the borrower only has to write one check (or bill pay transfer) per month for these expenses.  Lastly, there is an electronic paper train for all of the transactions, making it easy to verify and monitor spending. 

Side bar:  Credit vs. Debit for Purchases
Have you ever been asked the question, “Debit or credit?” when making a purchase with your debit card?  Whether you use debit or credit, the ultimate result is the amount will be taken from your checking account.  So, what’s the difference?

When choosing ‘debit’ for a purchase and entering your PIN (personal identification number), the transaction occurs in ‘real time.’  The money is immediately transferred out of your account to the merchant.   If you choose ‘credit’ for a purchase, it may take a little longer for the transaction to be processed.   The biggest difference affects the merchant and the fees they are charged by the bank and processing intermediary.  Fees for debit transactions are typically lower for the merchant.

Next up:  Banking Services