Important Points to consider before Borrowing Money

It is a fact that money is easier to borrow than it is to pay back and being in debt will undermine your financial security, especially if you are borrowing at a rate that is exceeding your income.

The best thing to do to avoid getting caught in the debt trap at all is to live within our means, but this can be difficult, especially as we can also borrow large amounts for justifiable cause such as investing in an education, property, a car or to pay for a medical disaster or emergency.

I have enjoyed a relatively debt free life by following a few simple rules:

Only borrow if it is an emergency. Pay the amount back as quickly as possible. It sounds simple but it can be tempting to borrow a large amount on your credit card, knowing that you only have to make the minimum payment each week. The thing to remember is that the longer it takes to pay back the loan, the more interest you will pay.

Consolidate your payments. If you have more than two credit cards then you have too many. I always keep just two cards. Every so often I will take advantage of a 0 percent deal and transfer all of my payments onto one card. Beware of transferring one debt onto another debt. You may get the zero percent interest payments on the money that you have transferred, but you will still carry on paying interest on any preexisting debit that was in the account you have transferred into.

There is usually two percent to three percent handling charge for money transfers. You will have to calculate whether it would be worth your trouble transferring. However it is worth bearing in mind that it would be better to get a 12 month 0 percent deal, and then your payments will come off the original debt and not be swallowed up in interest charges.

If you need to borrow money then think about whether you would be better going for a credit card if it is a short term loan, or a long term loan from the bank with a tempting interest rate. Shop around for the right kind of deal. Remember that the longer that it takes to pay the loan back, the more interest will be charged. It is vital that you read your credit agreement before signing anything. For example if you wish to be able to pay the loan back early there may be an early payback clause written into the agreement. If you think you may be in a position to pay the loan back in full earlier than agreed, then you will be better off using a lender that doesn’t charge a financial penalty to do so.

As a general rule the easier it is to borrow money off someone, the more suspicious you should be of them. The harder it is, the better the deal you will get.

In conclusion, at some point in our life all of us will have to borrow money. We just have to accept that eventually it will all have to be paid back as well. My last point is how much better will you feel if five years down the line you are not still paying for that expensive holiday in Florida that now just seems a lifetime away, or for clothes that have long been put in the rag bag, or for the holiday gifts that you can see sitting on family and friends shelves, that you are still paying for and now costing you four times as much as their original price.