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Credit Cards—Will They Serve You or Enslave You |
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“THE moment each month when I open my credit-card statements is a low-comedy catastrophe,” observes an English teacher in the United States. “I stare at the balance in disbelief, as if some other personality of mine, some fiscal Mr. Hyde, had gone on a manic tear through toy stores, appliance stores, supermarkets and gas stations.”
Dolores too finds it easy to run up charges. She says: “Using credit cards is painless. I wouldn’t spend real money like that. But shopping with credit cards is different. You never see the money. All you do is give your card, and the card comes back to you.”
It is not surprising that credit-card debt in the United States in June 1995 totaled $195.2 billion—an average of over $1,000 for every cardholder! Yet, credit-card companies continue to woo new customers with such incentives as low introductory interest rates and no annual fees. How many credit-card solicitations have you received in recent months? The average U.S. household gets about 24 every year! A typical cardholder in the United States used ten credit cards in 1994 to charge 25 percent more than he did the year before.
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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.
The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.
Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank loans and credit are one way to increase the money supply.
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