There are various reasons you might borrow money or open a line of credit. Debt can be a healthy way to fulfill your financial or lifestyle goals, and it helps you to build a good credit record. Debt can also be a bad thing, though, especially when you end up with high-interest debts or negative equity. While there are times when it makes sense to take on a debt or open a new line of credit or credit card, there are also times when it’s a bad idea. So what should you ask yourself to make sure you’re making the right decision?
Is Cash Preferable and Possible?
Before borrowing money, you should consider whether paying with cash is a better idea and if it’s possible. If you could take a few months to save the money that you need, it will ultimately mean you could save money. Of course, there are times when you might be unable to use cash. Buying a house is not usually a transaction entirely carried out in cash, although you do need a certain amount for a down payment. However, there are times when paying in cash is the choice that will help you long-term.
What Can You Afford?
It’s important to know what you can afford to pay. Debt should help you to spread out the cost of something, but it’s only a good idea if you can afford to make the scheduled payments. You need to calculate how much you are able to repay before you decide if a new debt is a good choice. Take a look at your income and your current outgoings to see how much you can afford to spend each month. There should be some room in your budget, so you’re not just breaking even at the end of each month.
Will It Benefit You?
When you take on a new debt or credit, you need to consider whether it will ultimately benefit you. Even if you can afford to pay it off, what will it do for you? Maybe in the short-term, it might pay for you to make home improvements. In the long-term, a new debt could mean you own your own home or maybe improve your credit score so that you can be a homeowner in the future. Using a credit card and paying it off every month and boost your good credit.
What Happens If You Can’t Pay Your Debt?
Finally, you need to think about what might happen if you can’t pay your debt. You might want to look at the theory of money is debt explained to read about how debt works. If you struggle to pay your debts, will you be able to discharge them if necessary? What methods will you be able to use to pay what you owe or get rid of your debts, even if you are not very financially stable?
Ask yourself these questions before you take on a debt or line of credit, and you can make sure you’re doing it for the right reasons.