If you’ve ever felt overwhelmed by debt or had to struggle to repay loans, you might be hesitant to repeat the process of borrowing money, ever again. But, not every loan is necessarily a bad loan, nor does applying for a loan automatically mean that you’ll end up deep in debt. As long as you weigh your options carefully, there are cases when getting a loan can make sense.
You Need The Item
Some purchases are difficult, if not impossible, to avoid. For example, people living in cities with lots of public transportation options might be able to easily live without a car. However, if you live in a rural area, a car can be a necessity if you hope to get to work, school or anywhere else. You might be able to find one that you can afford to pay for out-of-pocket but if you don’t have enough cash on hand or can’t find a cheap car that seems reliable, you will most likely have to borrow in order to pay for it. As for other scenarios, you might need to get loans to pay for repairs to your heating or cooling system in very cold or very hot weather, or pay for an unexpected medical bill. One way to tell if the item is a want or a need is to ask yourself how long you can live comfortably without it. If you’re freezing at home because your heater is broken, you probably can’t wait until you have the cash on hand to pay for a new furnace or for repairs.
You Can Afford It
If you can’t afford the payments on a loan, borrowing is not a good idea. Before you agree to a loan, look at what the monthly payments will be. If the amount is something you can easily and realistically fit into your budget for a period, it’s usually safe to take on the debt. But, if you’ll have to shuffle a lot of expenses around or start using credit cards to afford other necessities, it’s a good idea to consider borrowing less or to consider other ways to get the money for the item.
The Loan Is Helpful In Some Way
There are cases when a loan can actually help you. For example, if you borrow to pay for school, you can earn a degree that can lead to increased earning power and higher wages in the future. If you take out a mortgage to buy a home, the cost of the mortgage can be less expensive than paying for rent and you are able to build wealth, as most homes increase in value over time. Plus, the interest from student loans or from mortgages is usually tax deductible.
Even if a loan doesn’t provide a direct benefit, such as a chance to build your net worth or deductible interest, it can be helpful when it comes to building your credit score. If you have a low score or a history of bad credit, applying for and receiving a loan can help you reestablish your credit, which can help you when you want to apply for a mortgage or other major loan in the future.
If you need further assistance when it comes to deciding whether a loan is right for you, CESI can help. We offer credit counseling and a number of other services to help you manage debt and improve your financial life.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY