Borrowing money to make ends meet is an often-needed necessity. It can cover unexpected costs, cover an emergency, or finance a major purchase such as home renovation or car purchase.
When borrowing money, it’s essential to weigh the risks and rewards. Doing this can help you make an informed decision about whether to borrow or save.
Are you able to repay the loan?
It is essential to make sure you can repay any borrowed funds. Otherwise, you could become stuck in an endless cycle of debt that could prove difficult to escape.
Payday loans are popular among borrowers who have experienced financial difficulty, but the best way to prevent getting into that same situation is by creating a realistic budget that accounts for both essential and non-essential expenses. Doing this allows you to save up money for an unexpected bill or be ready to handle unexpected costs when they arise. Utilizing credit cards, loans and other financial products can help keep your cash flowing smoothly while providing food on the table when needed most.
Do you have a good credit score?
Credit scores are a three-digit number lenders use to assess whether you will pay back your loans on time. It’s an intricate process and depends on many factors.
Your credit score is determined by your payment history and other information in your report. If you make all of your payments on time and avoid late or missed payments, your score will rise.
Do you have an emergency fund?
An emergency fund is money you set aside to cover unanticipated expenses such as car repairs or losses of income.
Financial experts advise storing three to six months’ worth of living expenses in your emergency fund, depending on your income and current financial situation.
A well-funded emergency savings account can help you avoid debt, minimizing the long-term financial impacts of an unexpected event. Not only that, but it gives you peace of mind and allows for growth in your savings over time.
Do you have a savings account?
Savings accounts are an ideal way to store cash for specific goals or purposes, such as saving for a down payment on a home or setting money aside in case of emergency. Plus, they offer you the added bonus of earning interest on your savings!
When selecting a bank or credit union to open a savings account, look for one that offers competitive rates and low fees. Furthermore, make sure the institution is insured by either the FDIC or National Credit Union Administration (NCUA).
Do you have a credit card?
Credit cards are useful tools that enable people to borrow money up to a specific limit. Furthermore, they’re an excellent way to build credit history.
Banks or other issuers offer credit cards that you can use for purchases, balance transfers and cash advances. You must repay the borrowed funds – plus any applicable interest charges – at a later date.
Credit cards can help you build a good credit history, but it’s essential to know how to manage them responsibly. Missed payments or maxing out your line may negatively affect your score, so be mindful.
Do you have a bank account?
Your ability to get a loan may depend on whether or not you have access to a bank account. Without one, it’s more likely that you’ll run into predatory lenders with high interest rates who could lead you down an unhealthy path of debt accumulation.
Bank accounts provide you with access to debit cards and checks that let you deposit money. They also grant you the power of online payment and transfer, making managing your finances much simpler.
Those without bank accounts have some options, though they may not provide as much convenience as checking accounts do. Savings accounts offer safekeeping and the opportunity to build a banking relationship, however they cannot offer the same level of convenience.