Personal finance is not everyone’s favorite subject. In fact, many people adopt a head in the sand attitude to the whole subject but doing can often make a bad situation a whole lot worse. Obviously, the ideal situation is for you to start off with a clean sheet and earn money faster than you can spend it. The trouble is that spending is a lot easier than earning. If keeping on top of your finances is something you struggle with and you’re thinking of taking out a loan to help, the following are some tips to ensure you borrow money the right way.

If You Must Do It, Go to Someone Official and Reputable

Despite the financial sector being heavy regulated, it’s important to remember that not all lenders are created equal. Choosing the right company to borrow from can make all the difference in your financial future. One of the most critical reasons for borrowing from a reputable lender is protection against scams and frauds. Reputable companies have established themselves as trustworthy providers of credit services, and they must adhere to legal guidelines set by regulatory bodies. When you borrow from this type of lender, you significantly minimize the risk of falling victim to fraudulent schemes. Choose the right company and you’ll also get advice on responsible borrowing practices based on your personal circumstances. 

Know About Refinancing 

For many young people, taking out a student loan is the only way to pay for college tuition and even room and board. As such, it can be seen as one of the debts you can’t avoid (along with a mortgage down the road). As you enter the workforce, your student days behind you, and start making money, the idea is to pay off your loan as soon as possible, and it sounds simple in principle but there are variables. 

Are you making enough to pay it off as agreed in the first place? Are you making more than enough, so you could pay it off quicker? Will the bank allow this? That might seem like a silly question, but some loans come with penalty clauses because they want to receive all the projected money including the interest, i.e., the money they’re charging you for the act of lending. 

So, if you borrowed $X amount, they may be expecting to receive $X+Y, and if you pay it off early, they will miss out on however many months’ interest that you manage to trim off it. To the innocent borrower, this may seem unfair, but it’s business and it was there in the contract you signed. If you find a different lender offering better terms, you may be able to refinance your loan and enjoy benefits that can include a lower interest rate, a fixed rate, lower monthly payments, and a shorter period to repay in. That said there are pros and cons of refinancing student loans so be sure to read a full guide on the terms and conditions before committing. 

Shop Around

You wouldn’t book a flight without shopping around for the best price, right? You should take the same approach when it comes to borrowing money. Create a list of possible lenders and consider the interest rates, fees, and repayment terms (remember to check the late fee penalties). Is there one provider that stands out? Is it difficult to pinpoint who offers the better deal? These are questions that you need to answer. Even a small difference in interest rates can add up over time and cost you thousands of dollars in extra payments. 

Try to Take on Good Debt

Although it’s not always possible, it’s best to take on good debt as opposed to bad debt but what do we mean by good? This is a term that refers to any form of borrowing that leads to an increase in asset value or financial stability. In other words, it is the kind of borrowing that helps you achieve your long-term financial goals, such as buying a house (mortgage), starting a business (business loan) or investing in education (student loan). 

Good debt can also lead to lower interest rates and favorable tax deductions. Let’s look at one example of good debt in more detail: a mortgage. Buying a home with a mortgage can be considered good debt because it typically leads to an increase in the value of the property over time. This means that as you pay off your mortgage, your home equity grows, and you build wealth for yourself and your family to create a nest egg. Additionally, mortgage interest payments are deductible on income taxes, making homeownership more affordable compared to renting.

Don’t Borrow More Than You Need

Borrowing more money than you need can be a tempting option, especially when you have things on your wish list. However strong that temptation gets, it’s important to remember that every cent needs to be paid back and a short-term win can lead to long-term strain. Why? Is it not ok to take out just a few thousand more? 

Sure, it won’t make a difference. Firstly, borrowing more than you need will result in higher interest payments and fees over time. This can put a serious dent in your finances and leave you struggling to pay off your repayments and what happens when you’re late? That’s right; a negative credit score. Is getting a bad credit score worth the risk? This can lead to unnecessary stress and change the course of your financial future forever. 

Talk to a Professional

So, you’ve researched lenders and you’re aware of the terms, interest rates and fees. The next step is to speak to a professional financial advisor who will get down to the nitty gritty of the loan and whether you should proceed based on your circumstances. An advisor will assess your income, expenses, and current debt. They’ll be able to help you make an informed decision and take the guesswork out of choosing a provider and managing the repayments going forward. Getting in-depth personalized advice could mean the difference between making the right and wrong move.