3 Questions to Ask Before Taking on Debt
Almost everyone will have some sort of debt in their lifetime. Whether it is just a mortgage or it is a payday loan to get through a particularly rough month, taking out a loan is a good way to give yourself an injection of cash when you need it most.
However, getting into debt for the wrong reasons can cause some serious problems. For example, if you decide to take out a loan to buy a wardrobe full of designer clothes but then find that you can’t make the repayments, you stand to lose far more than your wardrobe but may have to sell off lots of your things to cover the interest.
While there are lots of sensible ways to get fast cash now, you should always ask yourself these 3 questions before you sign on the dotted line and commit yourself to the repayment scheme. This is a good way to figure out whether you are taking out a loan for the right reasons and when saving up might be a better idea.
Do I Really Need this Loan?
The keyword in this question is ‘need’. Need is not the same as want. For example, you need to pay your bills but you want to go to the movies. Paying your bills is a necessity because otherwise your home will be cut off by the utility company, but if you don’t go to the movies, no harm will be done. Ending bad habits like smoking or gambling could be a better way to get the money you need.
The best way to figure out whether you need or want something is to consider how it will affect you in the future. So, if you take out a loan to do a course, this could be a good idea because it will improve your job prospects, or a bad idea because it won’t help you at all. Weigh up your options and try to make a sensible decision about whether the loan is definitely necessary.
Can I Afford the Repayments?
Once you have established that you need the money, you need to work out whether this particular loan is best. Essentially, you need to find the best deal so that you know you will be able to afford the repayments. There are few ways to work out how much a loan will cost in total and how much the monthly repayments will be as a result, but the best thing to do is find the right online calculator to crunch the numbers for you.
How Can I Avoid Getting Into Debt Again?
The final question is about the future. If you have decided that you do need the loan and can make the repayments, you now need to think about how you can avoid this situation happening again. Because you are paying to have the money now, you are benefiting at the expense of future you. This is how many people end up in a cycle of debt. The best thing to do is to start saving as soon as you can to create an emergency fund and then continue saving to avoid further debt.
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