Your Money Lifestyle: Why, How, and When to Borrow

black woman reading student loans documents

Have you ever needed to borrow money but weren’t sure how to get the best interest rates? Or maybe you stopped and wondered whether it makes sense to borrow for a particular purpose, telling yourself that it would be wiser to save money and pay cash later on. These kinds of questions and financial decisions you need to make are all part of your money lifestyle and attitude.

How you think about the idea of borrowing and how often you do it can significantly impact how comfortably you live. No one wants to live on credit, and every responsible person would love to be debt-free. In today’s fast-paced, credit-based economy, nearly every working adult pays interest on at least one loan.

Credit cards are the most considerable monthly expense for some, at least in terms of interest charges. Others borrow more responsibly, and only when there’s a particular need, like for a home, an emergency, or for college. Whatever your situation, spend time examining your borrowing habits and decide whether you’re on solid financial ground. Here are four specific kinds of debt. Most people have at least one on their personal balance sheet.

Credit Cards

Plastic can get you in trouble, but cards can help boost your credit rating and get you through emergencies if you use them responsibly. Too many people are tempted to misuse them, which lands them in a progressive state of paying higher and higher monthly fees for interest. Consider applying for and using just one card from a major issuer. Make sure the issuer reports to all three bureaus so you get the benefit of improving your scores when you pay balances on time. Shop around for offers because some companies charge high annual fees and excessive late payment penalties. Not all credit cards are created equal, so do your research.

Personal Loans

Personal loans from private lenders make sense for things like trips, emergencies, buying cars, and purchasing big-ticket appliances for your home. Because private lenders are more flexible than traditional institutions, they have the freedom to offer favorable interest rates, realistic terms, and competitive borrowing limits. Opt for a personal loan when you need money for something other than buying a house. In nearly every situation, taking out a personal loan via a private lender is less costly than using plastic, getting a high-interest payday loan, or borrowing from friends and relatives.

Home Purchases

Unless you’re independently wealthy, you’ll probably have to apply for a mortgage when you buy a home. Your creditworthiness plays a significant role in the rate and terms you get. However, if you have less than stellar credit, one way around high interest is to make a down payment of 25 percent or more. Other options include FHA financing programs if you can qualify for them.

College and Graduate School

Every year, millions of people take out federal student loans to pay for college and grad school. The rates are usually okay, and the lending limits are typically high enough to cover the cost of schooling. However, it’s important to remember that if your education debt is lower than usual or you need to supplement what you borrow through federal sources, personal loans also make good sense.

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