Debt is something that can help you accomplish big goals and maintain financial health provided it is utilized correctly, responsibly and borrowed for the right reasons. A debt mismanaged or mishandled can have a very negative effect on your financial situation. Different aspects factor into the health of the loan and its ability to work well with your budget. It’s important to understand how to borrow wisely. Below is a quick reference guide to assist you in making good decisions with any new loans you take on.
Avoid Payday Loans
The primary aim of companies that offer payday loans is for you to be in a desperate situation and jumping in to high interest, expensive loan. Loans of this kind should be avoided strictly and you should consider other alternative options such as working out a more affordable plan with your current creditors for refund.
Shop for the Best Loan
It is always a good idea not to jump on the first presented opportunity when you need to open a new line of credit or financing. It will help ensure your ability to satisfy your debt when you take time to shop around for the best finance rates and terms that will work within your budget.
Monitor Your Credit Report
When you have outstanding loans, it is crucial to monitor your credit report because you can see how your outstanding loans are affecting your credit score and make any necessary adjustments so as to repair any problems and improve your standing as well.
Learn About All Fees Associated
With certain loans, especially mortgage loans, there will be other fees associated with the loan that you will need to consider when deciding if it’s the right loan for your budget and your ability to repay. Include fees such as mortgage insurance, HOA (Home Owners Association) fees, and any additional tax liabilities in your calculated payments to be sure you can satisfy your debt on time.
Pay Your Bills on Time
Above all else with your creditors, pay your monthly bills on time. Doing so will establish a record of credit responsibility over time and increase or maintain a good credit score. Not paying your creditors on time can poorly mark your credit report, not to mention accrue late fees and penalties for which you can be responsible.
Don’t Borrow More than You Can Afford to Repay
One of the key factors in maintaining healthy finances is borrowing within your budget. Loans can help accomplish meaningful goals and positively impact our financial situations when the key factor is used and planned for appropriately. It is however wise not to borrow for things that are not essential or things that you can afford to repay. Consider the length and terms of the contract and your ability to repay the loan within a timely manner before entering in to a new loan agreement.
Work Your Loan in to Your Budget
It is important that you make sure any necessary credit repayments will work with your current budget and that you can afford them when you are borrowing for something that your budget and savings do not allow you to pay for in full. Make sure you prioritize what you owe and restructure your budget accordingly if your financial situation changes after taking on this debt.
Don’t Borrow for Non-Essential Things
Make sure what you are borrowing for is something useful to your financial situation or to improve your life before you borrow. Frivolities should not be your reason for borrowing such as vacations, name brand clothing, gifts or jewelry. These kind or purchases can soon become a habit and overwhelming and stressful to pay off. Try to limit your borrowing to things like home and auto financing, school loans, small credit card purchases, and loans for emergencies that aren’t covered by any savings you may have built up.