What is a Credit Crunch?

Credit Card CrunchA CREDIT CRUNCH IS A REDUCTION IN THE GENERAL AVAILABILITY OF LOANS, or even a sudden tightening of the conditions required to obtain a loan from the banks. Either scenario is not good for you and I. The current credit crunch was partially caused by careless and inappropriate bank lending which resulted in losses for lending institutions (as well as losses for the investors in the debt when the loans turn sour).

As we have seen, this has resulted in widespread foreclosures and bankruptcies for investors, entrepreneurs, business owners and everyone else directly impacted by the ramifications of previously inflated assets dropping precipitously.

The way such institutions handle their reckless ways is to reduce the availability of credit. Heck, we have seen lenders unable (and/or unwilling) to lend further, even with government bailouts, as a result of the banks’ earlier losses.

As a loose comparison, it’s somewhat like a business owner who has such a gambling problem that he failed to make payroll and adversely effected all his employees. And then, after receiving a loan from the government, didn’t want to spend the money because he is still crippled with other complexities resulting from his gambling.

That comparison is flawed for an important reason: In spite of his gambling problem, the business owner may very well be presiding over a business that provides fair exchange and value to its customers.  The credit industry is not based on such a premise, even in the best of times.  Its entire purpose and reason for existence is to mire consumers into debt problems so that the credit card companies can ensnare  consumers within a never-ending debt trap and keep them paying high fees and interest rates for the rest of their lives.

If you are caught in that trap, and would like to get out of debt, without bankruptcy, click “Contact Effective Financial Solutions” for a free and no-obligation personal debt consultation.

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