Editorials
Related Photos
Discussion
Is all credit evil?
Don McNay
“And if I change my mind
A million times...”
— Shania Twain
I hate certain types of credit. I don’t own a credit card and I don’t want one. Payday lending, tax refund anticipation loans and other forms of legalized loan sharking should be outlawed.
I’ve watched many people get in trouble with upside down car loans, second mortgages or from using high interest rate financing.
Credit keeps many people from living within their means.
Then a friend told me he was buying a large house.
My buddy is a financial genius. He is someone you never heard of — and he wants it that way. He drives a modest car and lived in a modest home, both of which he paid for in cash. He is more interested in his portfolio than pretense. He is a self-made success.
He said that with the housing market depressed and interest rates below 5 percent, it made good financial sense to buy a nice house and finance it for 15 years.
I’m not sure he really wanted a nicer house. He just saw it as a financial opportunity.
He is rarely wrong and never makes irrational moves. He got me to thinking again about the evils of credit.
There are times when credit is good, when it is used responsibly by the people who can handle it.
For example, take someone in a high tax bracket who is financing a house. If he borrows the money at 5 percent, the actual cost in most cases will be roughly 3 percent, after taxes. If he used the house money for an immediate annuity, he would have the cash flow to pay the mortgage, get the mortgage interest deduction and participate in any increase in value of the house. (I am assuming that sometime in the next 15 years, houses will appreciate in value again.) In the meantime, the mortgage and annuity rates would stay the same.
That is a fairly low-risk way to use credit.
He could also put his money in the stock market and make big gains. Or lose his shirt.
There has been a lot of shirt-losing in the past couple of years.
Investing in the stock market can be like going to the race track. There are going to be winners and there are going to be losers. People should understand that any investment involves risk.
In the subprime, “too big to fail,” anything goes market that brought on the financial crisis, some people forgot about risk.
Those are the people that I don’t want to have credit. None at all.
Many are losing their shirts by paying outrageous fees and interest on credit cards.
Credit cards can take 20 to 30 percent a year in interest plus really outrageous fees. Guaranteed. And you don’t get a tax deduction.
I can’t think of a worse investment than that.
I watched so many people fall off the wagon on credit cards, that I bought into the “just say no” philosophy on any credit.
A pioneer in the “never borrow money” philosophy was the Christian author and lecturer, Larry Burkett. In the mid 1970’s, he founded a non-profit organization called Christian Financial Concepts, that used biblical principles in guiding people with their finances. One of those principles was no debt whatsoever.
Burkett was extremely popular in Christian circles until his death in 2003 but he never reached a mainstream audience. Dave Ramsey has.
Ramsey has a syndicated radio show and a nightly program on the Fox Business News Network. Ramsey acknowledges Burkett’s influence in his book, “Financial Peace.”
Although, like Burkett, Ramsey focuses his attention on churches and Christian communities, he reaches every demographic. His message of savings and sacrifice and never borrowing money is one that many people need to hear.
Then I think about my friend. I am sure his new home is a smart financial move.
Credit in moderation can be good. But like any addiction, credit can be the worst nightmare of your life.
I understand there are some circumstances where a home mortgage is a great idea, but don’t be looking for me in any Capital One commercials in the near future.
Don McNay, CLU, ChFC, MSFS, CSSC is the founder of McNay Settlement Group, a structured settlement consulting firm in Richmond, Ky. Write to Don at don@donmcnay.com.
- Editorials
-
-
Perhaps peace is on the way
“Brent Scowcroft this afternoon brought me the report that two Marines had been lost, so I felt we should convene the National Security Council to discuss the situation in Saigon. Who can bring us up-to-date?” Pres. Gerald R. Ford, April 28, 1975.
-
America’s Hangover From the Bailout Party
In the decade before 2008, the financial world was like a presidential inauguration ball. On Inauguration Day, there is a ball where only the closest insiders and Washington power players get invited.
-
Williams-Farmer ticket could be announced soon
Signs point to an announcement soon that David Williams and Richie Farmer will form a Republican ticket for governor and lieutenant governor. Williams badly wants to run and openly covets Farmer as his running mate.
-
Better test scores ‘Easier’ done than said
During the past week, Kentucky’s education report card took more hits.
-
Oh, how things have changed
It was September. I was in fifth grade. It was the second year of Little League football in London.
-
Manifest Destiny and the Art of the Political Thriller
One of my favorite writers is Fletcher Knebel. Knebel was a writer in the 1960s who mastered the art of political fiction.
-
Even the founding fathers had an agenda
Perhaps the greatest collection of genius in one place at one time took place in Philadelphia in 1787 — the Constitutional Convention. We too often fail to appreciate how revolutionary, subversive and radical their ideas are.
-
Superintendent ‘molds’ his legacy by ignoring a school’s success
Madisonville’s Hanson Elementary School ranks as one of Kentucky’s top performers among all elementary, middle and high schools. It never fails to meet all “No Child Left Behind Act” targets. Never.
-
When women couldn’t vote, they could still be elected
“No Person shall be a Representative who shall not have attained to the age of twenty-five Years, and been seven Years a Citizen of the United States, and who shall not, when elected, be an Inhabitant of that State in which he shall be chosen.” —The Constitution of the United States of America
-
Is Main Street Ready for the Second Wave of the Recession?
I‘ve been driving through small towns in Kentucky and I keep seeing the same thing. Businesses that have suddenly closed or are holding “going out of business” sales.
- More Editorials Headlines
-
