Loan Education Center
The sensible use of credit is part of a sound financial strategy. Credit can help us enjoy things that otherwise are beyond our current reach. Borrowing can also have its ugly side. Too much, too expensive or the wrong kinds of debt can make life miserable.
Borrowing costs money. That’s not a bad thing; it just means when you pay it back, you have to pay more than you borrowed. The components of a good debt strategy are quite simple:
- Choose when to borrow and how much to borrow very carefully.
- Find the best interest rate and terms, based on your needs and ability to repay the debt.
- Live up to your repayment responsibilities.
- Periodically review your debt. Refinancing your mortgage or an auto loan may save you money.
The Importance of a Good Credit Record
A good credit record does more than just make future credit approval easier to get. Most lenders use your credit record to determine credit limits and what rates to charge. A good credit record will save you money by giving you access to preferential rates and terms.
Free credit reports are available at www.annualcreditreport.com. For more options, please visit:
Common Sense Borrowing Habits
- Never borrow more than you can repay
- Never borrow for a luxury if you cannot afford the necessities
- Prioritize your borrowing
- Reserve some borrowing capacity for emergencies
Getting Help if Needed
Take action immediately if your borrowing is getting out of control. If credit cards are the problem, stop using them or even cut them up. Contact lenders to develop a workable repayment plan. A qualified credit counselor can help.
Consider All the Terms
Comparing credit cards can be confusing. You have to consider interest rates, fees and associated benefits. The right card for you should reflect how you use it. If you pay the full balance monthly, the interest rate is of little concern. Focus on any annual fee and benefits such as airline miles or cash back features. If you carry over balances, the interest rate should be a top concern.
When shopping for a mortgage you should balance interest rate, length, and down payment requirements that fit your situation. Adjustable rate mortgages usually have lower rates, but your payments may rise. Long-term mortgages usually lock in at a higher rate. So, if you expect to stay in your current home only a few years, an adjustable rate mortgage may be best. Also, if an increase in monthly payments would be too painful, look at a fixed rate mortgage or an adjustable one with rate adjustment limits.
Prioritize Borrowing Based on Long-Term Value
- College educations
- True necessities
- Major furniture purchases
- Expensive jewelry rarely worn
Being conservative in your use of borrowing can help you take control of your financial future. Borrowing for the right reasons and living up to your repayment responsibilities can make borrowing a useful financial tool.