Borrowing money can really be beneficial as a financial tool although it arrives with its inherent compulsions in the opinion of Scott Tominaga. Whether it is a credit card, personal loan, or mortgage, it is crucial to consider borrowing with diligence to sidestep the financial pitfalls associated with it. Make sure to follow certain recommended dos and don’ts when considering borrowing money.
The Dos of Borrowing Funds
- Understand Needs: Take a moment before taking on any loan to ponder if it is truly needed. Determine if the loan is for an important reason, such as acquiring a home, saving on an emergency, or simply buying a luxury item. Borrow for ‘needs’ and not to fulfill ‘wants’; and mind that it’s the basic step to staying financially stable.
- Research Lenders with Diligence: All lenders are not alike. Be sure to compare the rate of interest, loan terms, and fees before opting for a loan. A relatively low interest rate can be tempting, but just never forget to compare its associated terms and conditions. For example, other fees or repayment terms can make the loan fairly expensive down the line.
- Plan Repayments: Before borrowing money, having a clear idea for repayment is a must. Knowing the capacity of how much the borrower can repay each month taking into account their income, expenses, and other debt burdens is important. A realistic repaying plan keeps individuals from falling into debt burden, which can have a devastating impact on one’s credit score and overall financial life.
- Boost The Credit History: Borrowing loans responsibly can be instrumental to improving credit rating, enabling one to enjoy better loan terms with low interest rates, easy repayment terms, etc. According to Scott Tominaga, paying loans on time, staying below the limits of borrowing, and maintaining a good repayment history are some ways to make a good credit history.
The Don’ts of Borrowing Money
- Don’t Overlook Monthly Budget: People should how the loan payments should fit into their budget. Probably it will be very problematic to take a new loan for one with an already hectic budget and a considerable amount of debts. Without a well-strategize budgeting process, it can result in lost payments and a destroyed credit rating.
- Don’t Miss Payments: Missing payment of EMI or Installment of the loan can take a toll on one’s credit score while causing them to count late payment changes and increased interest rates. For those who have any trouble making payments, consider contacting the lender immediately and explore options such as deferment, restructuring, or even consolidation. This will certainly help prevent severe financial blow from missed payments.
- Don’t Depend on Borrowing for Meeting Everyday Expenses: Borrowing money or taking credit for managing day-to-day living costs is a perilous habit. Using loans or credit to buy groceries, pay bills, or any other daily essentials can lead one to a debt trap within no time. It would be better to cut expenses and earn more instead of relying on borrowed money for one’s day-to-day expenses.
Opting for credit can be a very helpful option if managed responsibly, and that is why one has to understand the risks attached. Follow these dos and don’ts, to ensure that borrowing becomes a helpful part of one’s financial plan rather than becoming a burden that hits them back.
