Consumers must learn 'new rules' to money game

Inflation carries on ironic twist: The less money is worth, the more it costs. This is commonplace in financial circles. But now for the consumer who needs money for a new car or refrigerator, or to turn the garage into a spare bedroom, it means the borrowing game is played by new rules.

The byword, according to Robert Gibson, president of the National Foundation for Consumer Credit in Washington, is "back to fundamentals." This means budget-cutting, he says, and holding borrowing to necessities.

Lids have been lifted one by one over the past year on what people can be charged for small loans, letting interest rates on consumer loans follow their temperamental leader -- the prime rate.

Credit unions with federal charters now can charge 21 percent. The actual rate most credit unions are charging is around 15 percent -- higher for personal loans, lower for auto loans. The rate is gradually moving toward 18 percent, as state regulations are lifted and the cost of living out credit goes up.

Sears, Roebuck & Co., the nation's largest retailer, is charging installment buyers between 1.5 and 1.75 percent per month, or 18 to 21 percent annually.

All this signals caution to consumers, caught in a complex and hard-to-predict economic web.

Some have used the stratagem of borrowing as a hedge against inflation: Buy now on credit before the cost of both the goods and the credit goes up.

This tack has become a harder one to take since March, when the Federal Reserve Board made its strongest moves to clamp down on consumer credit. High interest rates now threaten to cut still deeper into the margin of safety in such hedge borrowing.

A $150 dollar-a-month bill for a new car may be within a family's budget now, says Robert Gibson, president of the National Foundation for Consumer Credit. But consider, he warns, that new, higher social security payments in 1981 will mean a lower paycheck for many next month. And grocery bills may be 10 to 15 percent higher in several months.

While inflation may make the $150 represent a steadily smaller payment in real terms, these shifting economic sands could leave little sand under the family's financial feet.

"People ought to continue to use credit as a tool for family planning," Gibson says. But be judicious, he recommends. Avoid credit for nonessentials.

For people who need money, it's a good time, Gibson suggests, to take a fresh , hard look at assets, both for cash value and borworing power. Borrowing against what one has paid into a house, for example, has become widespread.

Now financial counselors are routinely prescribing loans against the cash value of insurance policies. H. Don Morris, executive secretary of the American Association of Credit Counselors, calls this "about the cheapest money you can get."

Some suggest borrowing on insurance in order to invest in money market funds or Treasury notes in order to actually benefit from rampaging interest rates.

How high the price of money will go, and how high it will stay, is the subject ofmuch speculation. Some see recent drops in the prime rates as a signal; some still see a 25 percent prime on the way.

And some see a decade of austerity ahead -- for government, lenders, and consumers.