Wednesday, October 7, 2015, AM | Leave Comment
Make sensible borrowing part of your sound financial strategy. Borrow with the belief that you would eventually get return when you invest the money for the long term.
For example, borrow to buy your next home, pay for your kids education or for starting a business. These types of loans might get you a good return in the long run.
However, be careful to not borrow too much at too expensive interest. The wrong kind of debt and use of it can ultimately make your life miserable like it has for millions of folks the last few years.
We all know borrowing costs money. In the whole personal finance strategy, this cost may not be so bad. Obviously the lending institutions want to make money. That’s their business. When you pay back the money, you have to pay more than you borrowed.
Good debt has different components and you should take them into consideration when you borrow.
You borrow only when you absolutely need the money and even then you should choose very carefully when to borrow and what to borrow for.
Shop around. Look for the lowest APR (Annual Percentage Rate) not just raw interest. Find the best interest rate and terms, based on your needs.
You then have a chance to improve your credit score as well. So make sure you don’t miss on monthly payments.
Set it but don’t forget it. Periodically review your debt. You might save money down the road by refinancing your mortgage or an auto loan.
Before you borrow, understand the importance of good credit score
Your good credit score does more than get you loan in future. Most lenders use your credit history to determine how much credit to approve you for i.e., credit limits and what interest rates to charge.
Therefore, keeping and maintaining a good credit record will save you money. The better the credit history, the higher credit limit and the lower interest rate.
FTC and other government agencies as well suggest to use Annual Credit Report dot Com website to get a free credit report once a year so you can know your own credit record. Otherwise for a small fee you can order a report from one of the three large credit reporting agencies.
Before you borrow, keep this in mind…
In this blog and others, you would find many places where bloggers of personal finance preach the following and for good reasons.
Consider the simple fact that folks borrowed seemingly never-ending loans and spent the money on nothing but what I call junk spending – spending on nothing, just waste pure and simple.
Before you borrow, do your own calculation. Borrow enough that you can repay within the mutually agreed upon time-period.
Some folks borrow money to buy $100,000 car when they can buy another so-called luxury car for less than half. Therefore, never borrow for a luxury if you cannot afford the necessities.
Think about prioritizing the types of loans you apply for. There are loans you might want to get for college education, housing, autos, major furniture purchases, and other types of loans.
When borrowing, don’t go way over your head. Borrow what you need.
Seek help when your borrowing gets to be too much and too expensive
Take action immediately if your borrowing is starting to get out of control. If credit cards are the problem, stop using them or even cut them up. Contact lenders to develop a workable repayment plan. Seek a qualified credit counselor to help you.
Consider all the terms and read fine prints
Comparing credit cards can be confusing and surely it is a daunting job. You have to consider interest rates, fees, and associated benefits. The right card for you should reflect how you use it.
In a Nutshell
Being careful and conservative in borrowing can help you take control of your financial future. Borrowing for the right reasons and living up to your repayment responsibilities can make borrowing a useful financial tool. You can make your financial life much enjoyable by borrowing sensibly. On the same token, borrowing can turn out to be too expensive if you borrow without any set goals.