Credit Market Squeeze: Is It Actually Better for Your Personal Finances?

Right now, economists and others are worrying about the continuing credit market squeeze. Indeed, they are very worried about the fact that lenders continue to tighten their standards for mortgages and consumer loans. The Federal Reserve says that domestic banks are making it harder for people to get all sorts of loans.

The result? Less access to credit will result in lower rates of consumer spending. MarketWatch reports regarding the credit market squeeze:

“This is consistent with our view that consumer spending will slow markedly over the next several quarters,” wrote economists for Lehman Bros.”

“The impending tightening may ultimately curb consumer credit noticeably,” wrote Harm Bandholz, an economist for UniCredit Markets. “This in turn would be another nail in the coffin of the U.S. consumer, who is already suffering from the weak labor market, high inflation and falling house prices.”

But, really, is less access to consumer loans really a bad thing?

Probably not. While a weak labor market and high inflation may be putting strain on your personal finances, the inability to continue consuming (read: spending money) at such a high rate will probably actually help your financial situation.

Consumer based economy vs. your personal finances

Right now, our economy is based on the fact that you will spend, spend, spend. The ease with which we have been able to obtain credit for the last 20-25 years is mostly to blame. Our spending habits have moved from those that are based mostly on saving money to buy what we want down the road to going into debt in order to get something now. And now our spending (and being in debt to keep spending) is what keeps the economy running. But while it makes the economy happy, it has left many individual personal finances in serious trouble.

Really, I think that the credit squeeze is likely to be better, in the long run, for most people’s personal finances. Don’t max out that credit card! You may not be able to get another one so easily. Besides, if you shift now to using money you already have, rather than credit, you will save in interest charges and keep more of your money. And your financial situation won’t be at the mercy of the smallest unexpected need for cash.

I think the best effect will be the efforts to save money. What this economy — and our personal finances — really need is a strong dose of tough love. While a decrease in consumer spending may be bad for our economy in its current form, it will most likely be good for our individual personal finances.

You know, because we won’t be spending as much money.

The time has come for our economy to stop relying so much on debt and consumerism to keep it going. A change is needed. And that means we need to stop relying on debt and consumerism to keep our personal finances going.

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