You never know when life can throw you a curveball. Between medical bills, car repairs, and more, just when you think you are caught up you find yourself in more debt. In order to get out of debt, you may have to borrow money. This allows you to pay off the bill and pay off the amount you borrowed on your own timing. Before you go off and start borrowing money, you want to make sure you are making responsible decisions so you don’t tarnish your credit score. If not, you could find yourself even further into debt and no ability to get a loan.
To ensure that you make wise choices when borrowing, here are some tips to help you get started.
Choose the Right Loan
Before you go into borrowing money blindly, you want to do your homework. Not all loans are created equal. Some have variable interest rates that can go up over time. If you are not sure how long it is going to take you to pay off the loan, then you want to stick with a fixed interest rate. This provides you the confidence in knowing your interest rate will never go up. Installment loans are a great option for those who need a specific amount of time to pay off a loan but do not want to worry about their monthly payment going up during the course of the loan.
Make Sure You Can Pay
There is no point in even trying to borrow money if you cannot pay the minimum payment. To ensure you are borrowing money that you can pay back, you need to know what your debt to income ratio is. You can calculate this by taking the amount of income you receive each month and dividing the total amount of your monthly payments. This will give you the ratio. The lower the ratio, the better off you are financially. You want to keep your income substantially higher than your debt so you can borrow money as needed without the worry of not being able to pay it off.
Borrow Only the Amount You Need
It can be very tempting to borrow a little extra money so you have some leftover to play with, but you have to keep it in perspective. The money you borrow has to be paid back at some point. This money comes attached to interest. This means, you are not only paying the amount you borrowed, but the lender is going to charge you a fee for this amount. The more you choose to borrow, the more interest you pay and the higher your monthly payment is. You want to only borrow the exact amount you need so you can get to work paying it off as quickly as possible.
Set Up a Plan for Repayment
While your lender will set a specified timeline for you to pay back the loan, it is important that you do everything possible to pay it off sooner. This means holding a yardsale, getting a second job, or saving up as much as you can so you can put extra money toward the loan. The faster you pay the loan off, the less interest you pay in the long run. To be able to do this, you need to go into it with a plan on how you will get extra money to put on the loan payments.