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December 2011 - Easy money could lead you to financial crisis.

Easy money could lead you to financial crisis.

☳ by Adam Aspilla

If you have a good credit rating with good and stable income most likely you are receiving pre-approved credit cards in the mail. Not only pre-approved credit cards, your bank may offer you to open a line of credit or if you already have line of credit, you are offered to increase your line of credit.

Those are called "easy money" for you did not apply for them and financial institutions just offer them to you.

With so many lending institutions, lending business is so competitive that is why banks and other lending companies are so aggressive in their marketing to get a bigger share of the market.

The irony with financial institutions is when you really need money they will not usually lend you, but when you do not need it because you are in good financial situation, they offer you line of credits and pre-approved credit cards.

Why are they doing that? Because they are in the business of lending money and their source of income is from the interest on the money. However, they have to choose carefully whom to lend the money to be sure the borrowers could pay the principal back and the interest as well.

When you receive those offers they are so tempting and very difficult to resist for usually they give you lowest interest rate. When you succumb to that temptation, you are entering a financial danger zone. 

Why? Because majority of those with unused line of credit and unused credit card limit, they lack control on their spending. If you are one of them, you would end up in financial crisis.

Just recently I had a client with six credit cards and two lines of credit, with a combined total of $105,000.00. Within a span of three years he spent all of it mostly on vacations in different places in Asia and in Europe. For him to pay just the minimum payment, he juggled his credit cards until he could no longer do it and finally filed for bankruptcy.

If you are not sure to control your spending, it would be wise to resist the temptation of accepting offers for easy money.

 

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.