7 Rules For Borrowing Money Safely
By Money Desk
Monday, December 9, 2019.
Most people say that you should never borrow money if you can avoid it because you will end up in a cycle of debt that is impossible to get out of. But it’s not realistic to say that you should never borrow money because sometimes, you just can’t avoid it. It’s never a good idea to max out your credit card on luxury items that you don’t need, but in some situations, you will need to borrow money to pay for unexpected expenses or cover bills that you can’t afford.
If you find yourself in a situation where you need to borrow money, that doesn’t always mean that you will be trapped in debt for years. As long as you know how to borrow money sensibly and pay back your debts quickly, you will be fine. These are some of the most important things to remember when borrowing money.
Know What Kind Of Loan You Need
Getting the right loan for your situation is very important because it will make it easier to pay the money back on time without getting into financial trouble. There are a lot of things to consider here, so don’t rush in and take out the first loan that you are offered. Firstly, you need to think about why you need the money and how often you will need to borrow it. For example, if your car breaks down and you can’t afford the repairs, you will just need a one-off loan to cover the costs. But if your budget is stretched and there are certain bills that you are struggling with on a regular basis, you may need to borrow money more often. In that case, you will need an open ended credit source, like a credit card.
You also need to think about the repayment period on the money that you borrow. You may only be able to afford small payments each month, in which case you will need a loan with a long repayment term. But if you are only going to be in financial difficulty for a month or two before you get straightened out again, it’s better to go for a short term loan and clear the debt as quickly as possible.
Finally, you need to look at your credit score because a bad score will limit your options. If you don’t need the money right away, you should spend some time trying to increase your credit score before borrowing, so you have more options and you can get a better interest rate.
As long as you think about all of these things first, you will be able to make an informed decision and get the right loan for your situation.
Avoid Borrowing From Friends And Family
If you have a bad credit score and you are finding it hard to get a loan, you may decide to ask friends or family to borrow money. A lot of people would be happy to lend you the money because they don’t want to see you struggle, but borrowing from friends and family is not a good idea. If you are unable to pay back the money quickly, it can lead to tensions and have a big impact on your relationship with that person.
If you have no other options and you do have to borrow money from friends or family, you need to put strict guidelines in place. Treat it like you would any other debt and set out a clear payment plan so they know exactly how much you will pay them and when. This is the best way to avoid any arguments about the money.
Avoid Guarantor Loans
In the past, guarantor loans were often the only option for people with bad credit. The way that it works is that you apply for the loan and then you choose a friend or family member to be a guarantor. They agree to take on the debt if you are unable to pay so if you miss a payment, it will be taken from them instead. But this is not a good idea because you are dragging them into your difficult financial situation and if you miss payments and they have to cover it, that can lead to a lot of arguments and bad feeling. It is possible to get loans for bad credit no guarantor required, which is always a better option. A lot of people go for guarantor loans because they don’t think that they will miss payments, but there is always a chance that you will, so it isn’t worth the risk.
Only Borrow What You Need
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When you fill out a loan application, you may be informed of the total amount of money that you are eligible to borrow, and this could be more than what you initially asked for. A lot of people are tempted by this because they think that borrowing a bit extra will take the pressure off, and if they are eligible for it, they may as well take the full amount. But what you have to remember is that you will need to pay that money back with interest, so it will increase the debt burden. It’s best to work out exactly how much you need to cover your expenses and only borrow that amount. Keeping your debt as low as possible is the best way to avoid any financial problems in the future.
Don’t Just Consider The Interest Rates
Shopping around for the best deal is always important when borrowing money, but a lot of people make the mistake of only considering the interest rate. But the loan with the lowest interest rate isn’t always the best deal because there are other charges and fees to consider. For example, some loans charge a fee for early repayment so you cannot save money on interest by increasing your payments each month. Some loans also add extra charges for credit insurance that you don’t need. It’s important that you read the loan agreement carefully and watch out for these extra charges if you want to get the best deal on a loan.
Set Up Automatic Payments
When it comes time to start paying back your debts, setting up automatic payments is one of the best things that you can do. If you don’t have automatic payments in place, it’s a lot easier to overspend and then find yourself in a position where you can’t afford to make payments on your debts. Once you start missing payments, you will get charges and you will start to lose control of your finances. The best thing to do is to set up automatic payments on the same day that you get paid. That way, all of your debt payments go out straight away, before you have a chance to spend the money, so you will never miss any.
Seek Help If You Need It
If you find that your debt payments are getting on top of you and you are struggling financially, you need to seek help right away. There are companies out there that offer debt advice and debt consolidation services. They can help you find ways to manage your debts and pay them off without getting into financial trouble. The earlier you seek help, the easier it will be, so get in contact with somebody as soon as you start having difficulties.
Borrowing money is not always a bad thing and sometimes you can’t avoid it. But as long as you follow these tips, you can borrow safely and avoid financial trouble.
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