Loans come with pros and cons, but in order to benefit and have a smooth run when it comes to repaying, there are several dos and don'ts to keep in mind.
Borrowing Money Do's
1. Make Comparisons
Do you intend to borrow money? The last thing you want is to settle for the first lender you come across. Search for a loan option that meets your needs and has monthly repayments that you can afford. Look for several lenders and do a proper comparison online, especially the rates. If you don't like what they have to offer, do not be afraid to step back and make an effort to build your credit score for better offers.
2. Go For Good Debt
This is using the loan for something that will appreciate like an asset such as a house in a good neighborhood or education from a well-known institution that will help you gain earning power in the future. You can't be certain that your home will appreciate with time or if your degree will pay off. However, doing proper research will help increase the odds.
3. Keep A Budget
When it comes to anything debt, it goes without saying that you need a budget. A budget is a great thing for everyone, but it is especially important for those in debt. Begin by keeping track of your earnings and expenses for a month. If you need it you can get a £50 payday loan but make sure you account for any lending in your budget. During the end of that month, go through everything to see your spending habits and come up with areas where you can cut back in order to repay faster or ensure you do not stagnate. Unless you keep track of your spending habits, you will have a hard time making payments on time.
4. Seek Help
If you are having a hard time keeping up with your expenses, debts or are uncertain of how to handle various loans, then do not hesitate to look for help from a non-profit organization specializing in credit counseling. These counselors will review your credit report and score and help correct any mistakes on the record. They will also work with you to create a debt repayment plan. This might mean making payments to the counselor, who then pays the lenders on your behalf.
The Don'ts Of Borrowing Money
1. Do Not Just Consider The Interest Rate
There are numerous factors to consider when it comes to taking loans and just comparing the rates won't cut it. Be on the look for red flags such as penalties for late payments as well as prepayment ones. Avoid personal loans that have costly insurance add-ons attached, such as credit life insurance. Such coverage policies, especially when you decide to finance them through rolling them into the loan, tend to increase the effective interest rate. Installment loans and payday loans are good examples to approach with caution.
2. Do Not Go Overboard With Consumer Debt
Consumer debt is usually considered as bad debt. That's because it is debt taken out for something that will not appreciate. You will spend the money and appreciate the fleeting enjoyment, but at the end of the day, you will be making interest payments for months on end. Simply put, it is best to save up for that vacation or new console than to finance it with consumer debt.
3. Avoid Late Payments
Making late payments on bills or expenses you can afford is not only careless but can easily become costly. Late payments tend to tarnish your credit score and can increase the interest you owe. This can also lead to late-payment fines and make your borrowing even costlier for as long as it takes to pay off the loan.
