5 Reminders for Borrowing Money Responsibly

Having various credit options like loans is helpful for those who are seeking more purchasing power to afford wants and needs. Aside from helping finance big-ticket purchases such as out-of-town vacations and new appliances, loans can also cover the bases for sudden expenses like house repairs when money is a bit tight. With more financial institutions lowering the barrier for borrowing, more people now have the opportunity to get financial comfort when there’s a need to make emergency payments or one-time expenses.

However, it’s also important to remember that having access to extra cash comes with an extra level of responsibility—especially when that money is borrowed. Fortunately, there are some best practices for borrowing money to help you optimize your loan and avoid the debt trap. Here are some reminders you would do well to remember the next time you need to borrow some funds:

Know If Borrowing Money Is the Right Solution

The purpose of your loan largely depends on your financial needs, but you can’t keep borrowing from lenders for every expense. As such, you need to know whether the circumstances are suitable for borrowing money or if you need to wait a little longer until you have more cash on hand.

For example, it’s not generally not recommended to borrow money for basic living expenses like food and transportation. While loans do help in making occasional expenses more affordable, they are not magic funds that put food on the table every day. It’s also not a good idea to loan money you plan to invest, whether it’s stocks, bonds, or any other investment vehicle. Markets tend to be precarious, and you could lose more than the amount you originally invested. You will only waste your money and jeopardize your funds if you can’t repay what you borrowed.

In a nutshell, you need to make sure that you have the means to repay your monthly installments. You must also have a budget for daily expenses, a stable source of income, and a good enough credit score. If you don’t have any of these qualifications, you may want to try applying for a job with higher pay, securing a side hustle, or waiting until at least some of your other debts have been fully repaid. It may also help to refresh your saving habits and build a financial reservoir to avoid over-reliance on loans.

Be Discerning in Your Loan Options

As mentioned earlier, the borrowing options available online have increased exponentially so that even low- to mid-earners have access to a wide range of lenders. However, this has also led to the proliferation of less trustworthy lenders and predatory lending practices. Thus, you need to be sure that you are interacting with trustworthy lenders when you take out a loan online to avoid getting scammed out of your hard-earned money. Consider shopping around for legitimate lenders with reasonable terms to make repayments and disbursements as smooth as possible.

Borrow An Amount You Can Repay

As a rule of thumb, you should only borrow an amount that you are confident you can repay. Remember, the borrowed amount is not the only thing you will be paying. You also need to pay interest, which is why it’s ideal to choose a lender with low interest rates to make repayments less of a burden.

It’s also because of this compounded amount that you need to include debt repayment in your monthly budget. Creating a budget will help you determine the absolute maximum amount of installment you can repay and how much the average monthly payment should be to make your loan more affordable. Most financial experts agree that you shouldn’t spend more than 10 percent of your income on all your repayments, so make sure to plan your budget accordingly.

Make the Repayments as Short as Possible

Some people can be careless with loans because they believe that they can repay them over a long period. While portioning your payments is helpful, opting for extended repayment schedules can also affect your funds since you have to keep paying interest rates. On top of that, subsequent financial needs may drive you to borrow more money even if the existing loan has not been fully repaid yet.

Before borrowing cash, make sure that you have a clear idea of how long you intend to repay the loan plus interest. Most quick cash loans can be repaid within 6 months, but it’s better if you can make your repayment schedule shorter than that.

Pay Your Debts on Time

Lastly, you should never forget one of the most important rules of lending: pay on time. Missed payments can affect your credit score, which in turn affects your capacity to secure more loans in the future. It would be ideal to pay in full, but you can also choose a lender that allows flexible payments to make things more manageable. In the end, promptly making repayments under a schedule that works for you will prevent your debts from ballooning and keep you from getting into hot water with creditors.

Mindful Borrowing Leads to More Financial Ease

When all is said and done, responsible borrowing is all about having an adult mindset when it comes to handling money. You also need to have a clear idea of where you stand financially—this means knowing whether borrowing money is a feasible option given your current situation. Besides personal responsibility, you must also ensure that you’re transacting with lenders that can be trusted for fair and accurate lending.

At the end of the day, borrowing money is not an inherently bad thing. You just need to borrow responsibly to make the most of this financial helping hand without sacrificing the money that you already have.