Adulting life is not easy. At some point in our life, we won’t be able to cover all our needs with our current cash on hand. May it be a house, tuition fee, or that dream car. Borrowing isn’t necessarily a no-no, but we must learn to borrow responsibly. Here are some of the top five tips for borrowing money:
- Work out your budget. One of the most important things I consider before I take out a payday loan is whether or not I am able to afford the repayment. I also make sure that the interest is not too high that borrowing would make it not beneficial for me. What I usually do is compute the interest, and compute the amount of repayment if it fits my monthly expenses. This tip was also mentioned in Citizens Advice UK.
- Never borrow money to pay off another loan. It may be tempting to resolve your current problem by paying out your loan, but this is not a good idea. This is not good in the longer term. Try to find additional income to pay off the loan but never take out a loan to pay another existing loan.
- Be an informed borrower. As mentioned on the Wayland Baptist University website, understanding the terms and conditions of the loan is very important. Like any other contract, before you sign something, make sure you understand everything stated and that you are ready to commit to its terms.
- Be realistic with how much money you need. If you are borrowing money from a friend or family, you have to also consider if you are asking for the right amount of money. Have you already considered trying to reduce your expenses? Have you also tried to look for additional income? You have to make sure that you are not borrowing too much because it can create more trouble. You might end up paying more than you have expected and more than you can afford, especially if they are giving a very high interest on the loan.
- Consider a loan contract. This is especially important if you are borrowing from a friend or family. While you may not have considered this because of your relationship with the lender, it may be a good idea to have a contract prepared because if this relationship has been strained, you can avoid future complications legally. A loan contract can also help the lender gain some sense of peace of mind especially if you are borrowing a big sum of money.
These are just some of the tips I always have on my mind before taking out any loan or borrowing money. There are also a lot of tips online so make sure you are ready to commit before you jump the plunge and borrow money. How about you? Do you have any borrowing tips? Please feel free to share them in the comments section!