Avoiding Bad Debt

Almost everyone will find themselves lacking in money a few times in their lives. This could be due to a lack of income or savings. It could also be due to the shear cost of what you are trying to acquire. Some might find themselves needing money to fund daily household expenses while others might want money to fund enticing investment opportunities. Whatever the purpose, exercising caution is a necessity. The problem is not how to get a loan because there will always be someone willing to provide if the terms are favourable. The real issue is how to Avoid Bad Debt that can cripple you financially for years to come. Answer the following questions before sending loan applications:

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Is the loan necessary?

You must ask yourself if you truly need the things that you are borrowing money for. An example would be attempting to purchase a second car when the current one runs fine. Perhaps the upgrade is not necessary at the moment. Another would be getting a mortgage for a dream house that costs a massive fortune. Maybe you could first get a small starter home and build up as the family grows. That would require a much smaller and more manageable loan that won't be too hard to pay for. If you are borrowing to start a business, then this might be a good move. If you are applying for a travel loan, then you might want to think twice.

Is the rate competitive?

If you are convinced that this loan is necessary, then you should next analyse whether it is competitive or not. There are many lenders out there so you should shop around. Some will give you money quickly but slap you with a high interest rate. This is the cost of borrowing. Just like with any other service, make sure that you are not paying more than you should. See if other banks or other lending institutions that provide you with lower rates. Don't sign up with the first lender that approves your loan.

Can you afford the loan?

You need to be candid with yourself when it comes to your finances. You have a finite income so make sure that it will be enough to pay all your bills, feed your family, and fulfil your debt obligations. Don't bite more than you can chew because this will backfire later on. Avoid bad debt to stay stress-free.