Many people who are interested in achieving financial freedom are asking about the role that their credit plays in the process. This can be a complicated issue unless you have a solid understanding of the proper way to use credit, and the banks certainly aren’t going to educate you when it comes to that.
The banks and lenders are, and always will be, out to increase their bottom line at your expense. What you need is a good solid understanding of how you can beat them at their own game and use credit to advance your simple personal cash flow plan…
A New Way of Understanding Credit
There are two types of credit: your financial credit and your personal credit. Your financial credit is represented by your credit score and your credit report, your personal credit has to do with your character and credibility when it comes to handling money.
Are these two types of credit the same thing? Some might say yes, but I say no.
Have you ever known a person who has a great credit score but who has used their credit to borrow so much money that they no longer have any room for investing or setting up cash reserves in case of an emergency?
This is a person who has abused credit and has borrowed themselves into a corner because of having a good credit score. If they have a financial emergency, they have no cash to handle it, the only thing they can do is use their “good” credit to borrow more money.
This is not responsible financial management, and the only way to get out of this trap is to make a shift in attitude and habits about how money is to be managed and how credit is to be used. Until this shift in character (personal credit) is made, this person will continue struggling in their financial life, mostly to preserve their financial credit and to keep current with their payments.
A wise man once said: “The rich rule over the poor and the borrower is a slave to the lender.” This was a very long time ago, but nothing has changed since then when it comes to the role of a borrower and a lender. The lender almost always comes out ahead. That is, unless you have a rock solid plan of action for how you’re going to use your good money habits to get yourself on the right side of the credit debacle.
Proper Use of Credit
The only way to use borrowed money to advance in your financial life is to have a proven investment strategy such as real estate investing which you can use to leverage the money you’re borrowing. Using borrowed money to pay your expenses or to handle emergencies or just for pleasure spending is always a trap. However, if you have a proven investment plan which you know you could create much more success with if you just had more money to use, borrowed money can be a great tool for creating financial freedom.
This will also help you to build the character and the habits which will help you to make the most of the money that you have and be wise in all of your financial decisions. This is the proper use of credit when it comes to achieving financial freedom.
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