Usually, there are two main ways to borrow money. You can take out a loan, getting the exact amount of money you need, or you can use a credit card. In either case, you’re basically using money that you don’t have and paying it back at a later date.
By definition, you’re already in debt. However, there’s a difference between being in a small amount of debt and being in massive debt. If you play your cards right, you can borrow money when necessary but avoid being in huge debt that leaves you on the cusp of bankruptcy.
What should you do to ensure you’re not going to end up with debt collectors banging on your door?
Don’t borrow too much money
We see this all the time with people that end up in thousands of pounds of debt, and it usually comes from credit cards or payday loans. In both scenarios, the person will borrow more money than they either need or can afford. As a result, they struggle to pay back what they owe, leading to extra fees and higher interest rate charges. It can mean that you spend years trying to pay a loan back when it could all have been avoided if you just borrowed a little bit less.
Credit card debt is perhaps the best example of this because people use too much credit on their cards, maxing them out. Then, they can’t pay the balance in full, so they start gaining interest on what they owe, while still using too much credit in subsequent months. It’s a slippery slope and a lot of debt would be avoided by using less credit and paying the bill in full.
Be wary of interest rates
When borrowing money from any source, always be wary of the interest rates. This is what you will pay on top of paying back the money you borrowed. With credit cards, you can often bypass interest rates by paying your balance off in full every month. With loans, the interest rate is basically how the lender makes money - think of it as a fee for borrowing money from them.
Check the APR of loans or credit cards to see how much interest you’re likely to pay. The higher the APR, the more worried you should be. Ideally, you want to borrow money with as low an interest rate as possible, making it easier to repay without ending up in too much debt.
Improve your credit score
Following on from the previous point, interest rates fluctuate from person to person. Your bank can offer the same loan to you and another customer, but both of you have different interest rates. This is because people with better credit scores get better rates as they are deemed more financially trustworthy and responsible. So, improve your credit score to get the lower interest rates, allowing you to be in a more comfortable position to pay what you owe.
There will be times in life where you have no option other than to borrow money. As such, it’s important to learn how to keep yourself in as little debt as possible for as short a period as you can. These three tips will help you do just that!
Author - Chris
Author, Editor, Creator of this website.