Struggling to make ends meet? Here is how to become a smart borrower
Deciding to borrow money isn’t easy. For most people, it represents a gap in income versus needs or big changes that could be positive or terrible. When you need to borrow money, the best way to maintain control of the situation is to intentionally take on the debt with a plan in place to get back out. In other words, you need to be a smart borrower.
ts a gap in income versus needs or big changes that could be positive or terrible. When you need to borrow money, the best way to maintain control of the situation is to intentionally take on the debt with a plan in place to get back out. In other words, you need to be a smart borrower.
Here are five tips to help you stay in control when you need a loan.
Borrow Only What You Need
When you get approved for a loan, it can be tempting to take a little extra. However, when you’re borrowing, it’s best to keep the mindset of when you’re going on a diet: remove temptation from your home by cleaning out the cupboards. From a borrowing perspective, it means taking only what you need.
If you’re taking a loan to cover the bills during a job loss situation, take only what you need to cover the basics. Take responsibility for being budget-minded and using cost-effective and free options for entertainment and extras in the interim.
Get the Right Loan for You
Not all loans are built the same. Depending on your credit score, collateral, and financial situation, one loan may work better for you than another. For example, some people are eligible for a line of credit. For those with a less-than-perfect credit score, payday loans and title loans are an easy-to-access alternative.
Shop around and find the right loan company for your needs and individual situation; don’t let your credit history stop you from applying.
Understand the Terms
Take time to read the fine print before signing for a loan. If you have any questions, ask beforehand. If you feel as though there are any red flags, have someone else review the paperwork and don’t sign.
Not only will understanding the terms help you use the loan effectively, but it will also prevent you from getting into an even worse financial situation. You’ll also want to take time to review your rights as a borrower so that you can contest any illicit or predatory behavior.
Have a Payback Plan
Never take a loan without having a payback plan in place. At the very least, you need to be able to make the minimum payments on your loan. Take some time to sit down and calculate your budget versus the debt you’re taking on. Evaluate what extras can be cut and how you can pay the loan back on time.
Having a budget printed out and posted on your wall or fridge keeps the loan at the forefront of your mind. You can also use other strategies, like the 2% method, to create an easy-to-follow payback plan that works.
Be Honest and Transparent
If you run into trouble and can’t make a payment, don’t dodge your loan officer’s calls. Instead, be proactive and call them before you miss a payment. Be kind and polite and explain the situation, as well as how you plan on correcting it. This approach maintains trust with your loan provider and ensures that your credit score doesn’t start dropping drastically.
Keep in mind that missing a payment should be a rare occurrence if it happens at all. A smart budget plan will help mitigate the risk of missing a payment, but sometimes life happens. A reputable loan company will often be flexible once or twice but don’t push your luck.
No matter your reasoning for deciding to incur debt, do it smartly and with intention. Use the money you borrow for necessities or as a temporary stop-gap measure until you can course-correct. By following these tips, you’ll be a savvy borrower and be back in the black in no time.