Personal loans are a great tool to achieve planned goals and even save you from paying high rates, but there are nuances that can make you go from a little debt to a deep unruly bad financial situation. Going into debt is very easy if you don’t keep a close eye on what you earn and what you owe.
So before you sign on the dotted line for your first personal loan, there are a few things you need to think about. Also, there is the small detail of actually needing a personal loan. Never take one if you don’t really need it under any circumstance. If you are already considering a personal loan, keep on reading so you can avoid a bad experience.
Shield yourself from debt
Sure, when you are asking for a personal loan, you are already taking on debt. But even the healthiest of companies (and people) use financial aid to achieve goals. The most important thing is to know what is good debt and what’s bad debt. These are six tips for you to have a great relationship with your finances.
Make sure you have the means to pay it back. If you don’t have a regular income or the one you have, it’s just enough to get you by, you shouldn’t ask for a loan. Ask for details like monthly payments and rates, make the math, and be completely sure you can pay back what you borrow.
Spend It Right
If you take borrowed money and spend it on snacks, clothing, or even investments, you could be wasting the money. Always make sure that you use your personal loans to get something for the long term… or at least medium-term. Never spend it on things that will have been consumed, ended, or broken before you finish paying it off.
Ask Only for What You Need
Even though you could get a really big amount of money just because you have a good credit history or a stable income, you shouldn’t borrow for more than you need. Make a plan that includes everything you want to do with the money and only ask for that. You could end up without the money to pay it back and too deep into debt with a collection firm on your tail.
Cancel Other Lines of Credit
If you are planning to use personal loans to consolidate debts or pay off other loans, it’s extremely important that you cancel the other lines of credit because an empty credit card can be tempting, and you could end up with new personal loan debt and a rising credit card debt. If you don’t want to cancel those credit lines, give the plastic to your mother, freeze them in a bucket of water or whatever suits you to not have it at hand for a late-night online shopping spree.
Never Default on Payments
Even though personal loan rates can be lower than other credit lines when you default on your payments, your debt will start growing, your credit history will be stained, and your credit score is bleeding red. In loans and in life, it’s better to keep your commitments. This could even be your doorway to a better and bigger loan like, let’s say, a car, a house, or a small business loan.
Don’t borrow for a ‘friend’. This should be in red and with shooting sparkles. There is no easier way to end a friendship than by lending money to a friend. Now imagine that you lent him/her the money you borrowed. You’ll end up friendless and paying off a debt that it’s not really yours. The same goes for family members. Just… don’t.
If you take good care of your personal loans and follow these tips, you’ll end up with better conditions for the next loan you need. Remember that a high credit score can open a lot of doors.
