A Muslim perspective on credit

I think the first person who introduced the idea of credit cards to me was Wilma Flintstone of the kids' cartoon The Flinstones.

She and her friend Betty Rubble would occasionally, holding small semi-rectangular cards, announce in unison "Charge!", then set off for the shopping mall to what I assume was the chagrin of their husbands Fred and Barney.

"Charge!" meant "let's shop till we drop" and for many, it still does.

But credit cards and the debt people incur using them is not about child's play or children's cartoons.

According to Ameridebt, a non-profit credit counseling organization with offices in Maryland, New York and Florida, national consumer debt in the United States has reached an all-time high of over one trillion dollars. Credit card debt accounts for approximately 400 billion dollars of that figure.

Credit cards are one example of Riba or interest.

What is Riba

The Arabic word Riba refers to an amount that is charged on the principal used.

Riba is made up of three elements. The first is excess or surplus over and above the capital of the loan. The second is the determination of this excess rate in relation to time. The third is that a transaction is conditional on the payment of a predetermined surplus.

These three elements jointly make up Riba and any deal or bargain or credit transaction in money or in kind which has these elements is considered a transaction of Riba.

Some examples of items that people usually buy on interest are houses and cars. Since these are very expensive, instead of waiting, many decide to realize their dream of having their own home or the newest car on the market before they have the funds to afford them. They can buy the house by taking out a loan. But the catch is the longer they take to repay, the more interest is added. This makes the house very, very expensive in the long run. The Quran and Ahadith are very clear about interest.

Credit cards

Credit cards are the major pillar of consumerism. They are the prime example of something which encourages you to spend even if you don't have the money. In a nutshell, credit cards are good for the banks and bad for you. They also involve Riba.

By using credit cards to buy, you end up paying far more than the original price of an item because of impatience and inappropriate planning. Every year hundreds and thousands of people are declared unworthy of credit.

Some cite convenience as the reason in buying using these cards as opposed to dragging cash for purchases.

But this is a weak excuse to use this piece of plastic. Someone who has a personal financial plan in place already knows approximately how much they will need for groceries, for example. In this case, they can take an adequate amount of cash instead of the card.

As well, the added bonus of doing this is that you can stick to buying what you really planned to instead of wasting your time and money on useless items. This is actually a great way to control your money and spending habits.

More on credit card debt

A study by the Consumer Federation of America released in mid-December 1997 noted that credit card debt increased that year at more than double the inflation rate, that this debt imposed serious financial burdens on tens of millions of households, and that a major reason for the debt rise was aggressive marketing and credit extension by issuers.

In the same press release, it encouraged Christmas shoppers to "consider spending only what they can afford to pay off in a month or two. Better yet, they should make purchases by cash, check or debit card"

"If looks too good to be true it is," one expression notes. This does apply in the case of credit. Buying something when you don't have the funds for it is a huge mistake. In some cases, it may not be drastic. But getting involved in smaller cases creates the habit of spending what you don't have which can lead to financial ruin in the future.

Credit debt is like slavery

An African-American brother once threw away his cards calling it a liberation from financial slavery.

Debt from credit is really slavery. You can never free yourself since the interest just keeps growing as time passes. It's sad but true. Whether you are a student who has taken out loans to further your education or a businessman or woman trying to start up a new venture, that loan which you may fully attempt to repay in the future may never be completely cleared because the longer you wait the higher the interest.

Do you really need a credit card?

Twenty-nine percent of all American adults do not own a credit card.

One pioneer of the Muslim community in Chicago who is an engineer now in his sixties has raised three children in America. He does not own a credit card and he never has one. He never felt that it was necessary.

Sometimes, we feel that we just have to have something. Advertisements encouraging the "buy now pay later" culture make you think less prudently for a moment when you are making a purchase decision.

Use debit cards instead of credit cards

One argument in favor or using credit cards is that it's just safer for when you are buying bigger items like a car or furniture. This is true. But there is an alternative to the credit card: the debit card.

These are issued in relation to how much money you actually have in your bank account. In a debit card, money goes out of your account as soon as you use it or within a day or two of the transaction in which the card was used. This way, then, you don't pay more than the actual price of the product.

There are four keys to avoiding credit and getting caught in the web of Riba through credit cards specifically: sincerity, commitment, planning and follow through.

Sincerity

Given the fact that you cannot completely escape interest and credit even in Muslim countries, some may think it is just better to go with the flow and use it anyway, despite it being Haram.

But we have to try as best as possible to avoid it and the venues really are there if we look for them and we have the sincerity to pursue them. One brother I know, a born Muslim who was "born again" into Islam, sold off all of his property and then went through a very, very difficult financial period, after losing his job. Alhamdolillah, today he is in a better financial position, but the point is, he was sure and committed that he was going to turn his life around and he did. But that came only after a sincere commitment to Allah.

Similarly, if we really are serious, and pray to Allah to help us avoid the Riba trap for His sake, He will open a way out for us. Don't forget where there is a will, Allah can create a way.

Commitment

Like with the above mentioned brother, there has to be a real commitment to change following the realization that things are not as they should be.

This commitment can be exercised dramatically or gradually, but it has to be exercised to have any impact on the way you deal with credit. Maybe you can start by canceling a credit card you rarely use. Or you can pay off one on which you don't owe very much and have it canceled. Just take one step, and Insha Allah, it'll have a domino effect.

Planning

While small steps may get the ball rolling, it is really a reasonable and well thought out plan that can help you avoid credit. That means sitting down and working out a financial plan to start paying back debts. It also means planning before you go shopping or to spend money on a weekly basis at least.

If you have a list, for instance, you can stick to what you have to get, and then apportion the right amount of money for this. This way you don't have to whip out a credit card. You can pay by cash or if you decide to use a debit card, you know you have to limit yourself to the funds already in your account.

Follow through

If necessary, reward yourself in the beginning of implementing your plan to give you the additional push or get a family member or friend to help you and encourage you to eventually completely stop buying on credit and relying on credit cards for purchases.

Credit cards, even when being used carefully are better avoided. There are clear alternatives, like the debit card for avoiding this possible trap for Riba. Let's make the commitment to stop the habit of charging and be more realistic in our financial dealings.

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