Most adults borrow money at some point in their lives. It can be for a dream house, education of children or for starting a business. If you know a few tips about borrowing money, you will be able to benefit from it without landing in any trouble.
Ways to Borrow Money
Whenever you borrow money, your finances are at risk. Taking on debt can land you in various types of situations. Therefore, it is important to know the various do’s and don’ts of borrowing money.
You need to conduct a research before you borrow money. There are various ways to borrow money. You can choose between:
- Credit card lending
- Bank lending
- Payday loans
- Margin lending
- Peer-to-peer lending
Borrowing money from friends is a common thing but you must make sure that your relationship does not get adversely affected. Whether you use a first time credit card or opt for peer-to-peer lending, you must be aware of the various implications of borrowing money.
The Do’s of Borrowing Money
If you are wise with debt, you will not face any problems. Let’s take a look at the do’s of borrowing money:
Do Know Your Reasons
If you are going into debt, you must have a valid reason. When you borrow money, you have to pay the money back with interest. Make sure that your interest is worth your time and money.
Do not borrow money for frivolous reasons such as getting the latest gadget in your hands. If you want to go into debt to have more money in your hand for a purpose, it can be a good reason. For example, you can use the extra money to buy a new oven so that you can earn money from baking cookies.
Do Search for the Best Interest Rate
One of the most important things you need to do while borrowing money is searching for the best interest rate. If you are wondering where can I borrow money, know that there are plenty of lenders. You have to know which lender offers the best interest rate.
The lower the interest rate, the lesser money you have to pay back. There are websites such as Bankrate where you can compare the interest rates.
Do Choose ‘Good Debt’
Good debt implies to the debt that can give you benefits in the long run. It can be for a home in a posh and desirable neighborhood. It can also be for education from a renowned institution that will boost your future earning capabilities.
They offer the advantages of borrowing money. You need to do a thorough research before taking the leap of faith.
Do Plan Your Budget
If you are on debt, you must plan your budget. Keep track of your monthly income. Note down how much you are spending every week.
At the end of every month, see where you can cut down your expenses. You won’t be able to make your payments on time unless you are on a tight budget.
Do Check Whether You Can Afford Borrowing
Borrowing money is an important financial decision. Make sure that you will be able to pay off the loan on time. If you are not sure about how you will pay it off, avoid borrowing money.
Do Read and Understand the Papers
If you don’t want to have problems with borrowing money, you need to read and understand the fine print. If you cannot understand some of the points, ask your lender immediately. Do not sign up for something without understanding.
Do Seek Professional Help
If you are unable to tackle your debts, seek help from a credit counselor. He will review your credit score and credit report. Both of you can work together to arrange a debt repayment plan.
The Don’ts of Borrowing Money
Now, let’s take a look at the don’ts of borrowing money:
Don’t Borrow if You Have Other Debts
If you have other debts, do not sign up for a new one. For example, if you already have student a loan, borrowing money from bank for a new car won’t be a wise decision.
Don’t Opt for Consumer or Bad Debt
Just like good debt, there is also bad debt. It is a debt taken for something that will give you fleeting enjoyment and won’t benefit you in the long run. If you want to take a vacation to an exotic beach or buy the latest tablet, then you need to save money rather than borrowing it.
Don’t Forget to Make Timely Payments
When you borrow money, paying on time should be on top of your priority list. If you fail to make timely payments, you have to pay the late fees.
If it continues for a long time, the lender can report your credit behavior to the major credit bureaus. This can jeopardize your credit score as well as future financial transactions.
Don’t Keep Your Debt as a Secret
When you borrow money, don’t hide it from your family. The safest option will be borrowing money from family. If that is not possible, you can opt for a loan.
Talking to your family about your debt will increase the sense of responsibility. Your family will check on you about when you are paying it back. They can also help you in making important financial decisions.
Don’t Borrow Money for an Emergency
If you are in a difficult financial situation and need money fast, don’t borrow money. This desperate move can land you in further problems. Borrowing should not be your financial solution.
Do not take a new debt to repay the old one. Having an emergency fund will help you in such situations.
Don’t Choose a Lender Without Proper Research
There are some unscrupulous lenders who can land you in deep trouble. Conduct a research on various companies before you borrow money from a lender. You can also take the help of your financial advisor in choosing the right lender.
Wrapping It Up
Reckless borrowing can result in serious financial problems. It can prevent you from getting a good job in the future or obtaining a new credit at a good rate. When you borrow money, you must keep the do’s and don’ts in your mind.
In this internet era, it is easier to borrow money online and pay off the debt quickly. You need to be sure of your reasons for taking on debt. You must know how you will pay the money back on time.