As the saying goes, when it comes to money, there are friends, family and fools. That said, it’s important to understand that borrowing money is serious whether you are asking a friend for a favor or if you are going to the bank to get a loan. US consumer debt is hovering around over $11 trillion per year. If you need to borrow money, be aware that debt is a by-product but as long as you are informed, you can borrow money and pay it back. Make use of these tips when you are planning to borrow money:
- Stick to a repayment schedule: This is especially true if you are borrowing cash from a friend or family member. Be stringent with paying back your loan on time and make sure that you don’t incur any interest from your loan because this can cause you to be in more debt than you bargained for.
- Only borrow what you can afford: This is crucial if you are borrowing from a bank or a consumer finance lender. They want to know that you can afford to repay the original loan plus the interest accrued on top of the loan. Look at your financial situation and see whether you can afford the APR.
- Just borrow for an important reason: Borrowing money should only be done as a last resort if you can’t save or if you need the money sooner rather than later. If the benefits of borrowing money outweigh the debt you pay back, then you can justify borrowing the cash.
- The APR rate: This is the piece of the jigsaw puzzle that makes everything come together. APR stands for annual percentage rate which can be applied to auto loans and other products such as credit cards. This is what determines how much you will repay.
Use these elements in your knowledge bank to understand how to borrow effectively without falling into any debt traps later on.