When you have dreams of paying down debt, borrowing money isn’t ideal, but sometimes, it’s a necessary step in taking control of your finances. Taking out a loan can help you tackle an unexpected emergency expense like a boss, even if you don’t have the cash on hand to pay for it on your own.
Borrowing money may be a fitting solution to your financial problem, but only if you avoid these mistakes. Make sure you aren’t committing these heinous financial faux-pas before, during, or after taking out a loan.
Mistake #1: Searching without Knowing Your Credit Score
When was the last time you checked this score? If you can’t remember, it’s time for a refresh. Use one of your three annual credit checks available for free here.
Knowing this three-digit number gives you a better understanding of the kinds of lenders, rates, and terms you can qualify for, so you can avoid those that you won’t be able to get.
Mistake #2: Applying for the First Loan Your Find
If your credit check shows you have a low score, it can play tricks with your head. It’s easy to think that you can’t or won’t get approved for a loan, so you might jump on the first payday lender willing to give you the time of day.
As you can see from this helpful resource page, payday lenders make it easy to borrow money online, but they come with quick repayment terms and high rates.
Just like their name suggests, you have to pay back every penny by your payday. This commitment may be challenging if you have other bills to pay in the same time period, so you should only ever use this option when you’re certain you can afford it.
Taking the time to shop around for other options helps you avoid locking into a payday loan you can’t afford. If your credit isn’t perfect, direct lender installment loans for bad credit may be a more manageable alternative, as you’ll have several weeks or months to repay what you owe.
Mistake #3: Borrowing without a Budget
A new study shows 80% of the country uses a household budget, so there’s no excuse for this next mistake. If you have a budget, see how your repayment bills fit into this spending plan.
And if you’re one of the 20% who doesn’t have a budget, no judgements here, but this is a sign you should make one. When you do, you’re looking to see that you can make your repayments on top of your usual bills.
You might have to slash some unnecessary spending during the terms of your installment loan. That’s fine — you can safely chop away to your heart’s content as long as you stick to discretionary spending.
However, if you need to put off essential purchases to afford your repayments, it’s time to go back to the drawing board. If you can’t make a payment without paying another bill late, the installment loan in question isn’t an affordable option.
Every mistake has a lesson. But when it comes to money, it’s best if you don’t learn them from first-hand experience. Making these financial faux-pas may come with a steep price tag, so avoiding them before you make them could save you some cash.
Keep this in mind the next time an emergency makes it necessary to take out a loan. It could help you borrow better.