519-646-2222Why do you use credit?
Why do you use credit, is it to purchase something you can’t afford, is it because you like being in debt, or is it a measured, calculated, use of someone else’s money to advance your financial position?
Very few people can afford to buy a house, or even a car, without using credit (someone else’s money) and either may be an appropriate use of credit. But if you are unable to afford to repay the obligation(s) you should not use the debt in the first place. In fact a responsible lender, having performed a modicum of due diligence ought never have loaned you the money in the first place.
Financial institutions are not responsible lenders, they are greedy and selfish, they use creative accounting to allow themselves the illusion of wealth in order to create bonuses for senior management and corporate directors. They afford little thought for the live they destroy or the plight of the people who are over leveraged in order to permit more lending (revisit fractional reserve banking).
Nietzsche, the German Philosopher, once said something to the effect of “even the lowest peasant in a society aspires to sit on the throne of the king” – if you are familiar with Nietzsche you will recognize the passage I am paraphrasing. The point being it is human instinct to aspire to bigger and better things whether through meritorious action or simply a DEI mandate, and the same holds true with aspiring to live a better life that is contingent on access to money you don’t have – debt!
Debt is the down side of credit, the lender gives you credit, you receive debt. It is important to recognize that and acknowledge the unpleasantness of repaying more and more debt with every paycheque. It hasn’t always been that way, lax banking regulations, and poorly conceived consumer protection laws created this economic environment over the past fifty years. Your grandparents, or great grandparents probably had no debt at all.
Unfortunately, today, one of the main contributors to excess levels of debt is excessive levels of debt. Debt is an economic trap, once sufficiently in debt the only way to continue to thrive in the debt economy is by adding on more and more debt. Taxation is also a major contributor, since more than half of the average Canadian’s income disappears into some form of taxation.
It should be obvious that people do not “want” to be in debt, back to the comment on Nietzsche everyone in the land would rather be rich than poor, but once debt levels reach a certain threshold (which varies according to income and lifestyle) debt consumption takes over as an imperative. While it is true that using someone else’s money to grow a business or to invest in some fruit bearing investment vehicle appears to be a good idea, it is one that rarely works to advance the borrower by a viable factor of growth.
An obvious con-job ought to be clear to the thousands of people caught in the RRSP loan trap – first time homebuyers are able to convert up to $75,000 of their savings into a Home Buyers Plan (“HBP”). The HBP scam allows for the transfer of tax sheltered RRSP funds into a deposit for the purchase of a home. For thousands of Canadians with either no, or insufficient, RRSP funds the banks will gleefully lend the funds to purchase an RRSP, through an RRSP loan – at let’s say 9%.
Several things happen – most of which are designed to help sell the idea of amassing a huge amount of debt. First, “Cinderella you shall go to the ball” – where you lacked the funds to qualify to purchase a home, by a miracle of smiles, handshakes and the shuffling of computer code, you can do it. Second, you get a tax rebate for “investing(?)” your hard earned debt into a tax sheltered investment. Third, you have the downpayment (debt) necessary to qualify you for a 100% (no money down) mortgage.
Wait, what? A “no money down mortgage“? Yes! You see your 5% downpayment was gobbled up by another government scam – it went to cover your mandatory CMHC mortgage insurance, you are guaranteeing the bank will be paid after you file for bankruptcy to get out from under an overwhelming pile of debt. The other 20% of your fabricated downpayment (1% of the 5%) will be used for legal and conveyance costs – leaving you with the 100% mortgage.
Now you have a 100% mortgage – you have no equity in the property at all, even if the price went up – you still have to pay close to 10% of the sale price to cover real estate commissions, legal fees, early buyout penalties, and so on. And you are on the hook for repaying the RRSP loan, and you credit cards and lines of credit have undoubtedly increased balances as you have tried to float all these additional costs on top of your day to day living expenses.
Want to buy a house? Save your downpayment, make sure you can afford the mortgage costs, save enough money to avert the need to pay CMHC fees, do not take out loans to fund getting further loans. Credit (debt) cannot improve your life, it can only make it worse!