It’s one thing to finance a mortgage or a car, but it’s quite another thing to be up to your ears in credit card debt or struggling to repay a personal loan.
When you take on a loan, no matter what it is or who it’s with, you are at risk financially. That’s one thing to always bear in mind. Not that anyone’s trying to frighten you from taking out a loan, because if used smartly, the benefits are obvious! That is why it’s of the utmost importance that you do your research before committing to any new credit or debt. For many Kiwi’s, understanding whether they even need to take out a loan is crucial yet an overlooked part of the loan process. We’ve put together a list of do’s and don’ts for those looking to get a loan!
DO: comparison shopping when you’re after the best lender
Ready to borrow money? A common mistake would be choosing the first lender you drive past on the road or an online advert that you see. Search for a loan that best suits the requirements you have on a personal and financial level and better yet, leaves you with a monthly instalment that you can actually afford. If you’re not happy, don’t rush, keep searching, the solution is out there, we promise!
DON’T: only consider the interest rate
When comparing loans, take care to delve deeper than just sourcing the lowest interest rate. Always keep an eye out for red flags and steer clear of any personal loan product that comes attached with little “add-ons” such as insurance on the loan and/or life insurance. When add-ons are a part of the deal, the interest rises too, which leaves you forking out way more in total.
DO: opt for good debt
This is the kind of debt you can actually afford since it’s being put towards something that’s going to appreciate in value. A good example is a property in an up and coming neighbourhood. One can never be sure of appreciation values, or appreciation at all! But good debt is generally a safe bet!
DON’T: get tangled up with consumer debt
This type of debt isn’t good debt at all, in fact, it’s the opposite. Taking a loan out to invest in something that is only going to depreciate is not fun. It’s going to bring you weeks of joy and after the joy is over, you’ll be left paying for it without any hope of getting your money back. Try to save for consumer debt items rather, it’ll save you and your wallet in the long run!
DO: stick to a strict budget
Anyone repaying a debt should have a budget in place. It would be dangerous not to because those payments aren’t going anywhere, but daily demands and emergencies might crop up when least expected. Everyone should have a budget, in my opinion, that is, but for those who owe money to lenders, it’s non-negotiable. The best way is to calculate your income versus your expenses for each month. You’ll find that in the list of expenses, there might be a few items you can shave off. Lunch with Susan on a Wednesday, for example, that would be a good start since it’s certainly not necessary if you have high bills and a new debt to repay.
DON’T: pay later than the repayment date
Most people have no idea of the repercussions when paying an instalment later than the agreed upon date. Let me tell you, not only does it cost you in interest or late fees penalties, you’re affecting your credit score while you’re at it! All this ends up doing is costing you more money.
DO: ask for help when you're in over your head
It’s not always easy to keep track of everything all the time. Life, work, kids, and finances. Soon, something could come up that you can't handle and making a mistake could cost you. Don’t be too proud to ask for help. Consider seeking help from a non-profit credit counselling organization or whoever you have access to in the financial sector. Financial counsellors will look over your credit score and point you in the right direction and assist with a solid debt repayment plan.
DON’T: throw good money after bad
Why a non-profit credit counsellor? Well, there are plenty of people and companies out there that want you to throw good money after bad. They may offer to counsel you or they may try to sell you on bad credit loans. At best, they’ll charge you an arm and a leg for advice about debt repayment that you could be getting for free. At worst, they could lead you further into debt.
Do: choose the stop order route
The easiest way to remember to pay your accounts is to automate them via stop order off your account. That way your accounts and loan repayments will be settled before you even have time to stop and think about purchasing that new painting for the house, or outfit from the store. While you’re on the automation train, set up an automated savings amount. You’ll see how quickly you become accustomed to the “true” figure of disposable income and how it becomes your new norm. Saving is one of the best good financial habits that most people never put into action.
If you’re an adult, chances are you’ve needed to borrow money at some stage or will need to. It’s so easy to borrow online, but you have to be careful about the choices you make because it could make or break your financial situation in a big way. So, borrow with caution!