When you don’t have the cash to do the things you want, it can be tempting to take out a loan or up your credit card limit. But being in debt can be risky, and it’s important to understand exactly what you’re getting into. Here’s what you should keep in mind.
What’s my budget?
Before taking out a loan, you should have a solid grip on your budget. You need to know all of your incoming and outgoing finances, and work out how much money you can save on a weekly, fortnightly or monthly basis. If you’re cutting it thin, taking out a loan will only put extra pressure on your budget – so you might need to rethink your priorities and look at other strategies.
Numbers don’t lie, check out this handy budget calculator
to get a clear idea of where your money is going.
The benefits of saving
Ask yourself – do you need to go on this holiday now, or can you wait a few months until you’ve saved enough? Borrowing money will instantly give you the cashflow you need to do the things you want. If this suits your situation, and you can afford it, then that’s great. But if you can legitimately wait, rushing into debt could be the wrong decision.
If you’d rather save up, consider opening up another savings account
, and contribute regularly to it. It’s amazing how motivating it is to watch the balance increase as you get closer to your target figure and very soon you’ll be on your way.
Being honest with yourself
Don’t forget, there’s a difference between wanting something and needing something. For example, you might want that new car
, but do you actually need it? And more than this, can you even afford it?
Thinking realistically isn’t always fun. On the flip side, it’s always smart. If you’re about to borrow, just make sure you understand the true value of what the money will buy.
Doing your research
How do you think you would fare on a financial exam? If the answer isn’t great, it’s time to put your head down. Because the more you understand about borrowing money, the better decisions you’ll make.
Whether you’re looking into credit cards
or personal loans
, find out as much as you can about eligibility requirements, interest rates
, term lengths, and fees. Educate yourself to know the difference between secured and unsecured loans, and that you properly calculate your repayments
Getting the right advice
Finance is a huge world, and there’s only so much we can learn by ourselves. To narrow it down, it’s worth a visit to your local branch
to find out more. They can help you decide if borrowing money is the right option for you. If it isn’t, they can simply talk you through your next best option.