Think Before You Decide to Borrow

I’m not the type to encourage borrowing. But the truth is that sometimes debt can be a good thing. Mortgages and student loans are considered by many to be good debt. And in fact they are if we let go of the traditional thoughts on what debt actually is considered. A mortgage, for example, allows you to become a home owner even though you can’t afford to pay for your home at once. Student loans allow you get an education with the idea of you falling into a rewarding career in which you’ll earn a comfortable income to lead a comfortable life. And when either is amortized over a significantly longer period of time, the money you borrowed for college or to buy that first home ends up being a one of the best investments you can make.

I don’t endorse anyone taking on debt that they can not responsibly pay back. However, I am in favor of sensible practical borrowing for particular situations that is consistent with your long term financial goals.

One of the pitfalls that you (and I) can make is to not think before you can borrow. I’ve foolishly taken on debt that I couldn’t handle. This resulted me going into significant debt in tune of $10K due to living beyond my means. . Seemed like a smart idea in the moment, but has cost me quite bit over time.

So, if you need to borrow, think before you decide to borrow and ask your self these questions first:

1. Do I need this instantly and will it instantly improve my life?

2. If I borrow now, will it restrict my ability to maneuver financially in the future?

3. How much debt can I handle without jeopardizing my present/future security?

If you seriously ask your self these questions before you borrow,  you’ll easily be able to tell when it pays to borrow and when it doesn’t.

Sadly a majority of borrowers don’t think before they borrow. The usual process is borrow first and figure out a way to pay it back later. I’m certain that majority of fast cash loans borrowers often don’t think through the borrowing before they borrow. It’s like an impulse purchase, except that they’re borrowing on impulse. I know people that have walked into payday loan locations to borrow up to a $1,000 to fund their travel hobby. They get caught in the excitement, friends are going, they want to tag along, but have no cash to fund the trip in the immediate moment, and instead borrow today, with the hopes of paying it back on Friday (payday) when it arrives. And instead of paying that short-term loan back on payday, they hit the mall and do a mini retail therapy to buy items for their upcoming trip. What about paying the loan back? They’ll do it when they get back. Only to realize they’ve entered the vicious cycle of revolving debt.

If you decide to borrow , fine. But that doesn’t mean you should borrow more than you can afford by taking on more debt than you can manage. Of course, in reality, people find all sorts of ways to rationalize questionable borrowing. Most often they confuse needs with wants.  You may want to go on that vacation, but that doesn’t mean you really need to go at this time. This is especially true if you’re funding your vacation on credit, which should be enough of an indicator that you’re not in a financial position to afford that vacation at the present time.

Sometimes deals seem so good that people don’t even realize they’re headed for trouble. That’s often the case with credit cards, with a combination of easy borrowing, teaser rates, and low minimum payments makes it shockingly easy for people to suddenly find themselves in deep water.

Despite all the negative talk on debt it doesn’t mean that you should avoid all debt at all times. A more rational response is to be prudent about evaluating when to take on debt.

In order to manage any debt effectively you should be in a position to pay it back ASAP – having a regular paycheck helps. And without a regular paycheck your opportunity for growth is virtually non existent. This is especially true for those who’s paychecks come directly from their commission. It’s only a matter of time before you have a slow month. Commissioned paychecks are like riding a roller-coaster, they go up quickly and come down even quicker. Riding the wave is not for the faint of heart.

Debt allows you to benefit from items you don’t yet fully own.  Concepts such as credit-cards, payday loans, lines of credit and mortgages provide you with the means to improve you life before you could otherwise do so. On the other hand, some people become addicted to debt and accumulate much more than they can repay. You shouldn’t become  a debt addict like these people, and jeopardize you future of debt free living. I can comfortably say that debt is a complex topic that deserves your careful study before you decide to borrow. Think for the future and not for the present.

Eddie