Debt is something that can help you accomplish big goals and maintain financial health when utilized correctly, responsibly and borrowed for the appropriate reasons. Debt can however, have a very negative effect on your financial stability when it is mishandled or not managed properly.
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
This kind of loans are paid by companies that their primary mission is to wait till you are desperately in need of financial assistance then you make a jump into a high interest expensive loan. These kinds of loans should be avoided when possible and you can also consider alternative options such as working out a more affordable plan with your current creditors for payment.
Shop for the Best Loan
The best thing is not to jump on the first presented opportunity when you are about to open a new line of credit or financing. You will be able to satisfy your debt when you take enough time to look around for the best finance rates and terms that will work within your budget.
Monitor your Credit Report
It is crucial to monitor your credit report especially when there are outstanding loans because you can see how your outstanding loans are affecting your credit score and make any necessary adjustments to repair any problems or improve your standing.
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 (HomeOwners 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 major factors of maintaining healthy finances is by borrowing within your budget. Loans have the ability to help accomplish meaningful goals and positively impact our financial situations when they are used and planned for appropriately. It is also important to avoid borrowing for things that are not necessary or more than 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 into a new loan agreement.
Work Your Loan into Your Budget
It is vital that you make sure any necessary credit repayments will work with your current budget and that you can afford them even as you are borrowing for something that your budget and savings don’t allow you to pay 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
Before you borrow, make sure it’s for something that will be useful to your financial situation or improve your life. Don’t borrow for frivolous, non-essential things, such as vacations, name brand clothing, gifts or jewelry. Making purchases such as these can become habit forming and quickly 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.