What Would Happen To Economy If Everyone Got Smart And Stopped Using Credit?

Answer 1

Our economy in the U.S. is called a debt based economy. The amount of debt americans carry directly effects what happens to our economy. If everybody stopped using credit cards and stopped getting loans, our economy would'nt just slow or recede, it would fail completely. Not using credit is not the "smart" thing to do. Using credit wisely, is the "smart" thing to do.

Answer 2

The economy would grind to a halt. Some people, including apparently you, and some of the early answerers of this question, have a perception that credit, or debt, is a bad thing. It's not.

If you've been reading the headlines of late, the housing crunch has been negatively impacting the markets and the broader economy for months.

If people got "smart" and stopped using credit, I wonder how many houses or cars would get purchased each year. Do you have $25,000 cash for a car sitting around...or $200,000 for a house? Remember, in your scenario, a "smart" person wouldn't finance a car, or take out a mortgage. I sure hope you can drive that car forever, or never grow out of the place you are living in now.

The real issue is getting people to use their credit responsibly, not stopping altogether. A large driver of the mortgage problems were people irresponsibly using their credit; people signing up for ARM's (adjustable rate mortgages) without understanding what could happen as the rates reset. Credit is an absolute necessity in today's age.

Also...let's not forget that a good way to EARN money is based on credit. If everyone got "smart" and stopped using credit, your interest baring accounts (interest checking accounts, money markets, savings accounts, CD's, etc) ALL go away. Immediately. The banks can't pay that interest if they're not taking in money from instruments like mortgages, car loans, and credit cards.

So let's just remember that when we talk about stopping the use of credit as a "smart" thing.

Answer 3

This country would prosper. Of course there would be less banks. If nobody borrowed money and supported banks by paying lots of interest they would be able to buy things. If your not paying payments to a bank somewhere every month you would have money.

Most people think you need a credit card and a High I LOVE DEBT score to live today. Banks love these people.

The only people that need a high I love debt score are the ones that borrow lots of money and pay lots of interest. Nothing else the score is good for.
Now, a low score from borrowing money and not paying it back is trouble. If you have a 0 score from not borrowing money you can still get a home loan (Manual underwriting). You can still get an apartment. you can still get a job.

Debt free is the way to be!

Answer 4

In countries where it supports the economy, there would be a serious economic shrinkage (like the US). In countries that are export-driven, there would not be as much effect except for smaller businesses, but there would be no or little expansion.