Shouldn’t We Be Responsible Borrowers?

I have been thinking a lot lately about the economic recession that not only hit the US, but also the world.  What really caused us to get into a recession?  I know that there are many factors that can be attributed to the recession, but I want to focus on one thing: Borrowing money.  The US economy is pretty much run on the idea that people will borrow money to buy things that they want.  We borrow money every time we swipe our credit cards.  We borrow money for school, for cars, for houses, for pretty much everything.  If we stopped borrowing money and thus spending it, the US economy would tank.  I am not here to preach about why we should stop borrowing money, I just want to talk about how we should be borrowing responsibly and becoming better financially.

Borrow what you can affordBorrow what you can afford

Like many, I have a mortgage and a car payment.  These are things that I wanted and that I could afford.  I chose to borrow money for them because it worked out for me.  When my wife and I went in to get our mortgage, we were pre-approved for about $350,000.  I initially thought that would make it easy to find a great starter home.  After running the numbers in my head (which I do for pretty much every purchase), I realized that we would be instantly house poor.  We wouldn’t be able to afford food, utilities, gas for our cars, or anything else.  We would only be able to afford the house along with taxes.

Armed with this information, we looked for a home that was much less than the pre-approved amount.  After looking for a couple of months, we found our current home and paid less than $175,000 for it.  This enabled us to have plenty of money left over to afford our other luxuries, but some of the necessities.  We are not house poor and were easily able to afford our mortgage through the recession.  The main lesson  here is only get a loan if you can afford it!  Though the bank pre-approved us for a larger amount, they did not force us to get a loan of that amount.  The end decision was all on our shoulders.  Just because they offer you a certain amount, doesn’t mean you have to accept it.

There are many out there that want to blame the banks for having lax borrowing standards and while that is true to an extent, we are all still responsible for our finances.  We, as consumers, have to be the ones that make the final decision whether something is good or bad.  I caulk this up to a lack of education when it comes to money and all of its aspects.  I know it can be difficult to decline when someone is offering you money with generous payment terms.  I used to have that same exact mindset.  I mean, why not take a large sum of money and only have to pay it back with small monthly payments?  This type of mentality is what gets us in trouble.

When you borrow money, you are allowed to indulge in instant gratification.  We all want it now, but we may not have a way to get it right now.  Borrowing money allows us to get a gripe on this fix.  The bigger issue is that we want EVERYTHING NOW!  We want new cars now, we want new homes now, we want the latest laptop or tablet now.  When we want everything all at the same time, we tend to borrow more than we can afford.  It goes back to my previous statement about only borrowing what you can afford to pay back.  You have to be your biggest advocate.  You have to understand the numbers, the math, and the consequences.  It is not the responsibility of any bank, credit card issuer, or personal loan shark to provide you with detailed information about how this might affect you personally.  When you borrow money, you need the be the one responsible and making sure you can afford it.

So, here is my question.  Shouldn’t we be responsible borrowers?  Shouldn’t we make sure that we understand the terms of each loan we take out?  Shouldn’t we make sure we can afford what we borrow?

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About the Author Grayson Bell

I'm a business owner, blogger, father, and husband. I used credit cards too much and found myself in over $75,000 in debt ($50,000 in just credit cards). I paid it off, started this blog, and my financial life has changed. I now talk about fighting debt and growing wealth here. I run a WordPress support company, along with another blog, Eyes on the Dollar, which is another great personal finance blog.

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Leave a Comment:

krantcents says April 11

One of the biggest reasons for the recession was the real estate bubble that burst and sucked a great deal of cash out of the economy. People were buying overpriced homes without income verification. In other words they bought at inflated prices and could not really afford their homes. Couple that with unemployment and suddenly there was foreclosures and homes underwater. Loan approval seems to motivate people to take on loans that are not sustainable.

    Grayson says April 11

    Oh yeah, the real estate bubble was the biggest issue, but that was due to people over-borrowing. They couldn’t afford the home in the first place, so they definitely couldn’t afford an overpriced home.

Michelle says April 11

Finally Grayson someone who speaks the truth. No one wants to own the fact that way too much money was being borrowed by consumers-excuse me, citizens of the the U.S. Prior to the Recession we borrowed and spent like drunken sailors. Also, why is it surprising to people that if they are making $45000 for a family and have been approved for a $300,000 house it’s probably not a good idea. It’s not rocket science. Let’s use our common sense. Jeez. Sorry, I had to get that off my chest!

    Grayson says April 11

    Haha, thanks Michelle. I completely agree with you there. It doesn’t makes sense that anyone could afford that home price when only making below $50k. Thanks for the mini rant!

KC @ genxfinance says April 12

Borrow what you can afford and it’s your responsibility to pay them. Even just borrowing money from your friend or family member. It’s common courtesy. You don’t have to be reminded that you have an agreement.

Justin says April 12

Too many people don’t take the time to actually realize whether or not they can afford something. They think, oh $250 a month for a car, I can afford that. But if you continue to do that it can become $1,000 per month and perhaps you cannot afford all of the loans.

    Grayson says April 12

    You are so right Justin. Once you keep adding on loans, it will get up there quickly.

Brick By Brick Investing | Marvin says April 12

Such a simple theory yet seldom implemented. I have given up on trying to educate those who do not want to hear it. So I am happy to live debt free and acquire assets while others sign away their future earnings.

    Grayson says April 12

    Go to it Marvin. You can only try so much and then it doesn’t matter anymore. I will continue to try to educate, but grow my net worth while I do it.

Michelle says April 12

People need to borrow responsibly. Live on way less than what you make, and SAVE the rest! Great post.

debtperception says April 12

I’m mixed on this. Responsibility should come from both ends. Yes, we should be responsible borrowers and understand the terms and know what we should be able to afford. But why are lenders willing to lend so much money sometimes to unemployed college students? It smells fishy to me. Most people would have to take classes or hire a lawyer to fully comprehend all the legalese that comes in most promissory notes. And no one’s job is guaranteed in this economy. Borrowing is always a risk. It’s too bad we don’t just buy what we can afford. I guess it’s worse that most of our country can’t afford much without borrowing.

    Grayson says April 12

    There is no problem being mixed. The lenders lend because they want to make money. They know that they can get more money from people that have a harder time paying, but the decision to get the loan still lands on the shoulders of the borrower. There is no lender that forces you to borrow from them. That is still the choice of the borrower.

Shafi says April 13

You said it. Responsible borrowing is the key to pay all your debt. Some folks borrow because they just want to borrow for no particular reason. Look at the credit card debt. Some folks shop and spend money unnecessarily because they want to be in debt. Yes! Some want to be in debt, otherwise, they won’t be doing needless shopping. And they are the ones who complain the most about not having enough money to repay their debt.

Laurie @thefrugalfarmer says April 13

Grayson, GREAT post. Like Marvin, I too have talked with SO many people who say “It’s not my fault I’m in this mess – they gave me this money to borrow, so it’s their (the lenders’) fault. And it’s exactly this kind of brushing off of personal responsibility that has created the mess here right now, both governmentally and consumer-wise. It would do us all a world of good to start stepping up to the plate and taking responsibility for our own decisions, wouldn’t it?

    Grayson says April 14

    I agree with you there Laurie. No one pushed the money down your throat. You didn’t have to sign the bottom line. We are all responsible for our own actions. We have to take on our own issues and deal with them.

Rose says April 14

What an eye-opener. We must only get the loan we can afford. House poor is a new term for me, others use a trapped lifestyle. Many would not know how their finances are doing and ended up broke!


Larry Bond says April 15

Yes, we have to be a responsible borrower so that the next time you ask to approved it will be much easier.

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