Why should a fool have money in his hand to buy wisdom when he has no sense? -Proverbs 17:16
Getting a loan is not to be taken lightly. You might be surprised to hear this. After all, everybody you’ve probably spoken to in the past will have likely told you loans are no big deal.
It’s true that getting a loan can be a very bad idea; however, sometimes it can actually help you. This guide will help you to consider five important things before taking out a loan.
You Didn’t Need It
It goes without saying that before get a loan, you need to be sure that you actually need it. Ask yourself if the thing you want a loan for can wait. Let’s use some examples.
If you’re taking out a loan to go on vacation or buy a new leather jacket, it can definitely wait. If you’re taking out a loan because your washing machine has exploded, you don’t have funds set aside, and you can’t afford a new one, you probably need it.
Ideally, you will only take out a loan in an emergency, when there is no other option. People take loans far too lightly these days and end up getting themselves into all kinds of debt. When you know how to budget properly, you don’t usually need to consider loans.
Related: Money Lessons From Mom
You Got the Wrong Type
Once you’ve determined that you need a loan, you need to research the different kinds. There are different types of loans to suit different needs.
Most people recommend you stay away from payday loans, as you can end up paying so much more than you bargained for, especially if you miss a payment. There are personal loans, direct car loans, consolidation loans, and more. Make sure you research them all to find the right type for you. Sites like https://www.directaxis.co.za have more information to help you work it out.
You Borrowed Too Much
Sometimes, you think, “maybe I should borrow a little more money than I originally intended.” You might think that if you borrow a couple hundred more than you actually need, you could maintain or lower your monthly payments and end up paying less back overall. Make sure you’re smart about the amount you borrow. Only borrow what you need. Period.
You Can’t Pay it Back
The most important part of a loan is making sure you’re able to pay it back. This is where you need to review your finances to ensure you won’t be struggling to pay back this loan. If you don’t think you’ll be able to pay it back, or something could happen that could stop you, don’t take out the loan in the first place.
Related: Money Management Tips for Moms
You Feel Like You’re Drowning
Being in debt feels overwhelming, suffocating, discouraging, and sometimes hopeless.
I compare it unsuccessfully swimming in the ocean. Imagine that you are swimming, but become overwhelmed by the waves, the oxygen is suffocated out of your body, the tide gets stronger, and there is no help in sight. That’s how being in debt feels.
As the Bible says in Proverbs 22:7, “the borrower is slave to the lender.”
You are working today to pay for something you used yesterday, instead of saving for what you would like to do tomorrow.
I have a large debt I need to pay off that I call the “Lifeboat Fund.” My goal is to use any savings I am able to create during this year to pay down that debt – hopefully by next year.
You can get a loan the sensible way if you just use the tips in this guide: determine if you need it, get the right type, borrow only what you need, make sure you can pay it back, and have a life jacket.
There’s no reason you should go deeply into debt or damage your credit if you’re sensible and you do the math.
What tips do you have for being smart about debt?