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3 Money Borrowing Mistakes You Need To Avoid

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When you’re in a tight spot financially, you might find yourself having to borrow money. People generally think of borrowing money as a bad thing, but that’s not always the case. If you do it sensibly, you can use it to keep your head above water while you sort your finances out. The problem is, people often get it wrong and end up in a cycle of debt that they can’t get out of. You should always avoid borrowing where you can and only use credit if you’ve exhausted all other options. When you do find yourself in a situation where you need to borrow money, make sure that you’re avoiding these common mistakes.

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Credit Cards With Bad Interest Rates

Credit cards are a risky way of borrowing because the interest payments can soon stack up. If you’re only able to make the minimum payment each month, you’ll just be covering the interest and not actually clearing any of the debt. You’ll be stuck in that cycle indefinitely unless you can start paying off more each month. The most common reason that people end up in that position is that they pick the wrong credit card. Interest rates vary quite a bit so you need to shop around and find one that is easy to manage. Check out this list of the top credit cards by the Motley Fool to see what offers are available at the moment. Your best bet is to find one that has an introductory no-interest period (usually a year). That way, you can borrow the money you need and then straighten yourself out and pay it back before the interest kicks in.

 

Bad Personal Loans

If you’re getting a personal loan of any kind, there is a lot to consider. You need to think about what the interest rates are, whether there are any early exit fees, and most importantly, who the lender is. There are plenty of reputable lenders out there, but for every good one, there’s a bad one as well. If you take a loan from a dodgy lender, you’re likely to be hit with huge interest payments and fees on late payments. It’s always best to get a loan from a bank and try to avoid payday lending services.

 

Borrowing More Than You Need

When you go to the bank and ask for a loan, they’ll look at your finances and let you know how much you can borrow. It might be tempting to take whatever you can get but that’s never a good idea. Taking out a big loan and paying off all of the bills etc. that you need to cover might sound like a good idea, but remember that you’ll have to pay it all back. Those massive monthly repayments are only going to land you in financial trouble again in the future. Work out what you actually need to borrow before you go to the bank and use this repayment calculator to see how much you’ll have to pay back.

Borrowing can be a good way to straighten out your finances but if you get it wrong, it’s an easy way to put yourself in a bad financial situation.


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