| What debt does is allow money that won't be available until some time in the future to be used for present purchases. It's a bit like the idea of a chemical catalyst, in that the effort required to trigger a transaction is lowered, though this is a catalyst that requires being paid back. For the general public, instances of use include: - Small but seasonal businesses. Farming is the classic case, but any sector in which receipts are seasonal (though relatively predictable) apply: hostelry, tourism, landscaping businesses, construction, etc. - Small nonseasonal business. Writing or other contract work in which production and income can be disconnected by months, sometimes years. The risk is higher here, but can still be bridged. - Large-ticket purchases. Automobiles, appliances, and electronics are typical. Numerous present credit banks got their start as the lending arms of large manufacturers, who could rely on a constant stream of incoming payments to advance loans to new customers, increasing net sales. GMAC (General Motors Acceptance Corporation, now Ally Financial, is the classic case). - Revolving credit lines. These generally started as credit accounts specific to a given store, often a department store. They eventually became much of the current credit card industry, by way of Bank of America. Here again, the general principle is to advance credit, easing purchases. Credit can be (and very often is) misused. But having a flexible payment mechanism on demand without requiring layaway or specific authorisation, and serving as a general check on other factors (credit cards have effectively been a social credit scoring system for decades) benefits ... at least some. Interestingly, much of the actual financial risk gets pushed off onto merchants. Though costs of managing credit do land on the individual. And no, I'm not much of a fan of the system. It exists, and has its uses, however. |