When it comes to finances, we are always advised not to use credit cards and to pay with cash, and borrowing money is seen as a bad thing. However, this isn’t necessarily true. In fact, borrowing money is actually a very clever move for your finances, when done wisely and correctly. The key is to borrow responsibly. Taking out a credit card or loan will boost your credit score and show that you can borrow and pay back money without acquiring any fees, and when the time comes and you have to think about future plans and investments such as buying a home or a car, a good credit history is an invaluable quality to have. Indeed, banks and lenders are responsible, legally and ethically to lend money to people. Yet, it is expected that those borrowing money do so responsibly, which is why it’s important to first of all determine the reason for borrowing. If you’re taking out money for a luxury holiday or brand new flat-screen television, you’ll probably end up getting yourself in a much deeper hole as these material goods will only depreciate in value once they are bought. On the other hand, borrowing money for essentials such as a home mortgage is favoured, because it can boost your credit rating.
Another tip before you take out a loan or credit card is to do your homework. Shop around a bit and work out which borrowing option is the best for you and your situation. Researching what each lender has to offer and getting advice from the experts may take a little time, but you’ll be paying the price (literally!) for years to come otherwise. Also, arranging your repayment plan before taking out the loan is a wise idea. That way, there won’t be any confusion or mishaps when you do come to repay the money. You can do this a number of ways, including putting aside a percentage of your future pay checks, or even taking a small amount from your emergency funds if need be.
Think about the duration and amount of your loan, remembering that it costs less to repay over a shorter time period. Borrowing responsibly means that it’s paramount to only borrow what you need or what you can afford to pay back. Although you may be approved for a high amount, you don’t have to take it all. To put it simply, the less you borrow, the less there is to repay. It can be really easy to fall into the trap of borrowing too much money, and then having to borrow more to pay it off. Juggling debts and asking for more money is not the solution and will only leave you in a deeper hole than before.
A huge part of your credit score is your payment history, as it shows how reliable you are when borrowing money. Making your payments on time is essential when you take out a loan or credit card, and failing to do so will be detrimental to your financial situation. There are ways for you to manage your repayments, including online services such as Wescot Credit Services, an organisation supported by Money Advice Trust, who can help you arrange affordable and reasonable repayment methods. They can also offer assistance about budgeting and what’s best for you in order to resolve your debt issues as soon as possible. Creating a budget, or setting up monthly direct debits to repay debts can also ensure that you are up to date with any pending payments.
Reading and understanding the terms and conditions of your loan is crucial when you’re borrowing money. Borrowing responsibly involves reading through everything, including the small print, and making sure that you know exactly what you are signing up for and how much it is going to cost you overall – it may be a lot higher than you first anticipated. Once you sign the document, you are the only one responsible for repaying the loan in full. Many of the terms associated with your loan will concern the APR (annual percentage rate) – how much of the loan will be added to the repayment. Be sure to look out for any information regarding late payment fees or prepayment penalties, which can easily catch you out if you are unaware.
If you choose to borrow money, the main thing to remember is do so responsibly. Making sure that you fully understand the terms and conditions, ensuring you repay on time and only borrowing what you can afford are the main things to keep in mind. With the right plan of action, you can make the most of borrowing money and use it to your advantage. Being a responsible borrower means that you will maintain a healthy credit score, as well as saving money in the long run.