Borrowing money is a decision you should never take lightly. As with all money matters, you need to take the time to carefully assess your circumstances to ensure you can repay what you owe no matter what happens. Otherwise, you may experience serious debt troubles like many Filipinos.

However, it is worth pointing out that when loans are used and managed effectively, they can help you save money, invest in your future, or meet short-term goals. Are you thinking of taking out a cash loan? If so, read on. This short guide will offer several tips on how to handle loans responsibly so that you can make the most of your borrowed money.

Ensure You Are Borrowing for the Right Reasons

Because taking out a loan is a huge responsibility, you may need to assess your reasons for borrowing. Does it make sense to borrow money, or will it just put an additional strain on your budget? Perhaps you need to replace your old washing machine or another expensive appliance, but you have no extra cash. In this case, taking out a personal loan or availing yourself of buy now, pay later financing  may be more sensible than charging the big-ticket purchase on your credit card since you will probably end up paying less. However, if you are getting a loan to finance non-essential items or impulse purchases, such as the latest smartphone or another expensive gadget, you may want to reconsider your decision.

Avoid Overborrowing

If you later decide that you have a legitimate reason to take out a loan, make sure you only borrow according to your need and capacity to pay. Do you only require Php10,000? If your answer is yes, then borrow just this amount even if you are eligible to take out a larger loan. Some people get too excited after getting approval that they opt for the maximum loan amount—thinking they have “extra” money to fund their wants. In reality, however, they are probably setting themselves up for financial woes. Avoid the same temptation by reminding yourself that you are borrowing money with interest. As such, the higher the amount you borrow, the more you have to pay because of higher interest fees.

Do Your Research

Before taking out a cash loan, it is best to do a background check of lending service platforms or facilities you are eyeing to avoid loan scams and to find deals that truly address your needs. Besides scrutinizing the lending platform, you should also take the time to review the loan terms and conditions before signing or committing to anything.

Pay careful attention to the fine print and ensure that you fully understand your obligations to prevent encountering issues later on. Below are some essential details you should not miss when reading the terms and conditions:

• Repayment schedule
• Fees and charges you need to pay
• Total borrowing cost (including interest)
• Interest charges or late payment fees when you pay after the due date
• Consequences if you fail to pay your loan.

Come Up with a Repayment Plan

“How can I pay off my loan?” is a crucial question to ask yourself before borrowing. Unless you have a doable plan in place to fulfill your financial obligations, you will probably miss your payment schedule or acquire an additional loan to cover your existing one. Perhaps you can adjust your lifestyle, eliminate unnecessary expenses, and find ways to avoid overspending. By limiting your expenditures, you can save extra money that you can then use to pay off your loan.

If making a few financial adjustments is not enough, maybe you can look for strategies to increase your income as well. Try looking through your old stuff to see whether you have items you can sell online. You can also search for online jobs or side gigs you can do to earn extra money during your free time. Do you receive bonuses or other financial incentives at work? Perhaps you can use them to make repayments instead of splurging on an expensive vacation or buying things that you do not need.

Honor Your Obligations

A significant part of managing loans is paying your financial obligations on time. The lending party gave you what you need according to the terms you both agreed on, so you should be responsible enough to keep your end of the bargain.

Settling your debt way past the due date, or worst, not paying at all, can hurt you in the long run. Besides having to pay more because of the additional late charges or penalties, you may also face legal issues and have a hard time securing another cash loan or other forms of credit if you need them in the future.

Taking out a loan is a serious financial commitment, which is why you should never borrow money without thinking it through. The last thing you want is to fall into a debt trap that could negatively impact your future and reputation. And if you decide to take out a loan, keep the above pointers in mind and be sure to practice prudence and financial discipline so you can manage your financial obligations well.