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How To Borrow Responsibly

4 May 2011 3 Comments

The following is a guest post

There comes a time in almost everyone’s life where they must exercise the option of borrowing. Whether it is to buy a home, a car, finance an education or simply take advantage of a credit card to finance a vacation or that fancy dinner. Lenders are only too willing to lend people a little bit more than they can ultimately afford and don’t care you might not have the money to put into your savings account. It is your responsibility to ascertain whether or not you can handle a debt load. Borrowing responsibility not only helps keep your credit score healthy, it saves you money in the long run. Here are some factors to consider to help you borrow responsibly:

  1. Shop around. Don’t take the first deal you see, whether it is a bank loan or you decide to get a credit card. Interest rates are mandated by law, so pay attention and compare the rates offered by different lenders to get the best deal.
  2. Determine your borrowing reason. Borrowing money is an important decision. It is best to borrow for assets that appreciate in value, such as a home or education. Borrowing for a vacation, a fancy dinner or the latest flat-screen TV will result in you paying more money for assets that depreciate, costing you even more money.
  3. How much can you afford? The main consideration when deciding on borrowing money is how much you can afford to comfortably pay back. Choosing a short term loan can save you a lot of money in the long run, but if you can’t afford to pay a loan back, don’t take a loan in the first place.
  4. Set a budget. Even before you take out a loan, work out a budgeting schedule and stick to it. This should be part of your entire financial picture.
  5. Open a separate bank account. This is good strategy to keep the money earmarked for loan repayment to keep it out of reach of every-day spending. This can really help you stay on track and make the payments on time.

Not all borrowing is bad, and it can actually help your credit score and credit rating. The keys for how to borrow responsibly is to determine the right reason, don’t borrow above your means, and use a budget to help you pay it back. Borrowing may be a necessary evil, but with the right plan of action you’ll get the best from it.

3 Comments »

  • upthewazoo said:

    If your financially responsible, you can save, invest and u can pay most big ticket items in cash. the only thing u would need to borrow is to buy a home. that is good debt b-c it's a appreciating asset. but still, pay it off as soon as possible. borrowing to buy a car is stupid b-c it's a depreciating asset. buy what u can afford to pay cash and try not to go into debt by buying a nice to look cool. I see that happen a lot, because most of them can't afford the gas, insurance, monthly payment and repair cost. they end up selling it back.

  • WPC Flooring said:

    This is exactly what I was already doing. But when I came across the realization that it isn't set correctly on boot I thought I would ask about a different way.

  • Mark said:

    All good points above. If you are going to borrow money, make sure you have the funds to pay it back or you might find yourself in a debt spiral. This is true for tuition, car and even payday loans.