Joshua Watson is the webmaster and author of

Fifty years ago, credit was hard to come by. Banks were hesitant to lend money without collateral of some kind or without significant net worth on the part of the buyer. Now, it seems banks are more than willing to throw money at us. They are gambling that we will use the credit and carry a balance – the fees and interest charged on the loans and cards are huge sources of income for the bank. The more we spend, the more they make. Today getting credit is easy, and getting in serious trouble with the credit is even easier.

Too Much Credit?

The average person can borrow over three times his income to purchase a new home – with little or no down payment. Car loans can be taken out for over five years to help buyers purchase expensive vehicles at a reasonable monthly payment. Credit card pre-approvals and applications arrive at the mailbox daily. With so much credit available, it can be very hard to resist, even for those who know how dangerous it can be.

A home loan should not be more than two times your annual income, before taxes. So why do banks offer you up to three times your income? Because they know you will do everything you can to pay your mortgage each month and because they know most people will spend as much as they are allowed. It takes a strong person indeed to spend only $200,000 when they are told by the bank they can spend over $300,000.

Cars lose value instantly when purchased, and the longer a loan, the less car you own each year. Considering most buyers trade in a car in less than five years, the banks offering the long loans are making a bundle on the long, drawn out interest charged over the years on a car that is seldom worth what a buyer ends up paying.

Credit card companies have a relatively safe bet that consumers won’t be paying off the balance each month. Balances on credit cards are subjected to very high interest rates. The higher the balance and interest rate, the more money the bank is making. And the less likely you are to ever have the card paid off again.

Credit Dangers

With so much easy credit, its no wonder the average consumer has over eight thousand dollars in debt. With incomes unlikely to rise at the rate of spending, the payments on all the debt cripple many households. House payments eat up half of the monthly income and car payments take out another large chunk. Minimum credit card payments total large amounts and every dollar sent to the cards is getting you nowhere close to debt free.

Using too much credit is a spiral that is hard to stop. The more you spend, the more you pay on bills. The more you spend on bills, the less cash you have, so the more you borrow. Of course this increases your bills further and finally, you owe more than you make. When this happens there are few outs other than bankruptcy or some form of debt counseling.

Protecting Yourself

Rather than trying to dig yourself out of a financial hole for years, it is far better to stay away from falling into one in the first place. Credit is a wonderful thing that helps us make large purchases and enjoy life, but it must be used wisely.

Be realistic with the amount you can spend and avoid temptation. Every dollar you borrow is costing you money, and the more you borrow the more money you are making someone else. If you can’t pay cash at the time, be sure you have the ability to pay more than the minimum on each bill. Pay your credit card statement in full each month and avoid high interest rates and long terms. Be aware of credit risks and use your money wisely – after all, you worked hard to earn it.