Dave Ramsey, Suze Orman and others who advocate cutting up your credit card to eliminate debt are absolutely correct. These personal finance gurus have been on the national stage for years demonstrating the effectiveness of living within your means. I believe that anyone who extends themselves beyond their reasonable abilities will ultimately find themselves in an extremely stressful situation.

However, I also believe that credit should not be taken off the table. Credit is the life-blood of the U.S. economy. My wife and I purchased our first home using credit for more than $150,000. Unfortunately, I was not born into wealth, nor was I employed in a manner that paid me significantly to be able to buy the home with the cash that I had saved in my bank account. As a result, I needed credit, in the form of a mortgage, to finance the purchase of my home. Likewise, I was unable to afford the two modest cars, furniture and appliances, and even my college education in pursuit of the American dream without the ability to use credit.

These are not contradictory positions. Credit is incredibly important in our economy. On the micro or personal level, people actually need credit. I am prepared to stand and defend the need for credit. However, we must find a way to control our spending. Reasonable credit for more expensive goods and services should be used after you have determined, using a budget, your ability to repay the debt. Of course, it is far better to be debt-free than to carry thousands and thousands of dollars of debt. Most of us are financially unable to do that. Thus, the key is to get a complete understanding of what you can or cannot afford.

Use the Renewal Coach to assess your situation and develop a budget that will allow you to save for the future and afford credit at the same time.

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