Life Without Credit - How Are You Advising Your Clients?
Recently, I wrote about the significant reduction in consumer credit in the United States. A large part of that reduction comes from tightening credit standards; credit card issuers are offering less credit and even cutting back on existing credit lines. But that's not the only source of the decrease.
Disillusioned with credit card companies, whether through personal experience or because of the mounting public evidence of unfair practices, many Americans are simply choosing to operate on a cash basis. At first glance, it seems like a great idea: no fees, no interest, no living beyond your means...but as consumer bankruptcy attorneys we know it's not quite that simple. Paradoxically, the person who manages his money so well that he can live on an entirely cash basis can present prospective creditors with no evidence that he manages his money well. That means higher interest rates when it comes time for a car loan or home mortgage. It might even mean no access to those big-ticket loans. Even if the consumer never plans to use credit even for a major purchase, he may still pay higher insurance rates, have trouble renting apartments and be otherwise impacted by a lack of positive credit history.
What are you advising your clients in this changing consumer credit environment? To join the movement toward eliminating fees and interest and reducing risk by cutting out credit cards, or to stick with the systematic effort to rebuild credit so it will be there when they need it for big-ticket items?
