Unless you’re born into an extremely wealthy family, you’ll probably end up having to borrow money. Whether for a vehicle, a home, or post-secondary education, you can expect a financial institution to be in your future. Here are ten tips for borrowing wisely.
1. Borrow as little money as possible. If you need a new vehicle, you don’t have to try to purchase a brand new Hummer 3 if you can manage with a smaller vehicle. Calculate how much you make and decide how much you can easily pay back; then look for a vehicle that will give you payments in that range.
2. Understand the terms of a loan. The principal is the amount borrowed and on which you will pay interest. Interest is basically the rent you pay for using the funds received.
3. Consider how much credit you already have. If you’re going to need to replace something in the near future, do whatever you can to pay off one of your other creditors first. This will keep your debt-to-income ratio lower and possibly keep your credit rating from being unaffected.
4. Be sure to repay loans based on the repayment schedule you receive. Sending payments late will adversely affect your credit rating and possibly your ability to receive lending in the future. If you think your ability to repay a loan is at risk, call your lender immediately.
5. Shop around to see which financial institutions have the best interest rate and repayment terms. Depending upon the type of loan you need, you may have more options than you believed.
6. Regularly check your credit score and history. This will enable you to find errors and give you an opportunity to get those items repaired. Particularly look for accounts you have not opened or obvious errors.
7. Understand the terms of the agreement prior to signing final documentation for a loan. Are there questions at all about the terms? Ask the loan officer to explain things in a way you can understand.
8. Avoid the “borrowing from Peter to pay Paul” mentality. If you’re having financial problems, be sure to let your creditors know. They may be willing to lower your interest rate, your monthly payment, or defer a payment until you can get caught up.
9. Keep an eye on revolving credit. This type of credit doesn’t lend itself to remaining in a budget because you can pay off part of the balance on the account and then start charging up to your credit limit again. Revolving credit is often found on department store credit and may have higher interest rates associated with them.
10. Create a budget. A budget is like having a roadmap that shows how much income your family earns, what your household expenditures are, and how much you owe to creditors. Your goal is to handle your finances in a way that allows you to pay all of your monthly bills, provide necessities for your family, and still have some money left over to save for the future.
Use these ten tips for borrowing wisely so you can avoid financial problems. By following even a few of these tips, you may find your family on a firmer financial footing in the future.
