Contrary to popular belief, there isn’t anything wrong with borrowing money. In fact, sometimes you have little choice but to borrow money to meet a need. Having a little bit of debt to your name may even help you out when you want to purchase a house, or perhaps wish to borrow cash for a genuine reason.
The issue isn’t so much with borrowing money, it is biting off a little bit more than you can chew when you do borrow it. We want to help you out and make sure you don’t dig a financial pit.
Borrow from Licensed Lenders
You think this would go without saying, but you will be surprised at just how many people will borrow from less-than-reputable companies. If you do this, then you are borrowing irresponsibly. You will have high interest rates, and there will be nobody that “has your back” should things go wrong. Unlicensed companies are operating outside of the law. Avoid them and avoid inescapable debt.
Only Borrow as a Last Resort
You should never be borrowing money for the sake of borrowing money. Before you apply for a loan, you need to think long and hard about whether you genuinely need the cash or if you can sort something else out.
If you have no other choice but to borrow money then make sure that you only borrow exactly what you need. Nothing more. The more money you borrow, the more you will need to pay back.
Can You Afford to Pay Back the Loan?
When you are borrowing, make sure that you understand the repayments amount.
Before you agree to sign up for a loan, we suggest that you make a budget. You need to know exactly what you have coming into your bank account, and exactly what is leaving your bank account, every month.
You need to make sure that you have enough free cash to be able to afford the repayments on your loan (https://theislandnow.com/blog-112/effective-debt-management-strategies-to-pay-off-debt/). If you do not have any money to spare, then do not accept the loan agreement. It doesn’t matter how much you need the cash, this is just irresponsible borrowing.
Don’t Take on Too Much Debt
We have seen it time and time again. People see that they have a good credit score, and they apply for loans and credit cards galore. Don’t do this.
As we said before, make sure that you only borrow money when you have no other choice. We know it can be tempting to have all these lines of credit available to you, but you would just be biting off more than you can chew. You will have to pay them all back, after all. Could you cope with masses of debt if you lost your job? Probably not.
Avoid High Interest Loans
Want to know one of the best ways to kiss goodbye to proper debt management? Opting for high interest loans such as payday loans. While they will accept just about everybody with a job, the interest rates are so high that you really have little chance of being able to afford the repayments, and this will cause the debt to roll over to the next month. This makes it even more unaffordable.
If you want to avoid biting off more than you can chew, then you must shop around to find the best loan for your situation.
The Consequences of Mismanaging Your Loans
If you fail to do apply a debt strategy and do end up biting off more than you can chew, then you are going to be in a whole heap of trouble.
While you may not think a single missed payment is a bad thing, it is. Lenders will charge fees for missed payments. These fees can start to add up pretty quickly, particularly if you miss multiple bill payments. A couple of months of missed payments and your debt can very quickly spin out of control, and it can be pretty difficult to recover from something like that.
A single missed payment will also have an impact on your credit score. This can make it difficult to borrow money in the future. So, one missed payment is not going to impact your credit score all that much, but multiple ones will lower your credit score. You can destroy your credit score from just a couple of months of missed payments, and it can be exceedingly difficult to bring everything back up to scratch again.
When you find it difficult to borrow in the future, you may not be able to apply for a mortgage. You may not be able to rent a place. You may not be able to get the internet or cable TV subscription. You will simply struggle with anything that involves money with other companies. This is something that may impact you for years to come if your debt mismanagement is bad enough.
Finally, you may find that some jobs require you to have a decent credit score. These will be mostly those related to the financial industry. While this is not something that will impact most people, we do want to point out the fact that you will be limiting your job options a little bit by mismanaging your debt.
In the End…
If you already feel as if you have bitten off more than you can chew when it comes to debt, all you can do is work as hard as you can to bring up everything up to date. It may take you years to recover.
If you have yet to borrow, then follow our suggestions at the start of this page. This will ensure that you run the smallest risk of dealing with debt issues.