Many people desire to live a debt-free life. Such a life has little pressures and worries. However, debt is sometimes inevitable. We will often find ourselves short of cash. In business, we need to inject money into our companies for them to grow. In fact, many successful companies and economies were built using borrowed funds. Debt is, therefore, not a bad thing. The problems come in when we pile loans at a higher rate then we are clearing them. Such debts are bound to rise to unsustainable levels. This article will teach you how to become a responsible borrower.
Balancing income and expenses :
The main cause of unsustainable debt is consuming more than you are earning. The first step to responsible borrowing should, thus, be reversing this trend by reducing the disparity between income and expenses. This is not easy. It requires a significant lifestyle change.
People rarely budget for their expenses. But budgeting is a big step to prudent financial management. It saves you from panic buying and unnecessary expenditure. You should list all your projected expenses on a piece of paper. After that, record all your incomes on another piece of paper. If the expenses total is significantly larger than the revenues, you should delete the least important item from the list. Repeat the process until the difference is manageable.
Using loans for the intended purposes :
Human beings are confronted by unlimited human wants. These needs compete for the few economic resources. Sometimes, people take loans and divert them from their original purposes. For example, some students use education loans to buy electronics. The problem with this is that when the tuition fees are needed, they will have to borrow again from other sources. This leads to a pile-up of debt.
In the event a loan doesn’t have a specific purpose attached to it – such as most easy personal loans available online – the borrower has a responsibility to make the purpose a good one. Borrowing demands discipline, especially with undefined personal loans. You should never divert loans to unplanned expenses or the purchase of frivolous items.
Making timely payments :
Making late payments can cost you in many ways. First of all, it will lead to a pile-up of debts. It is easier to pay the debt while it’s still in small proportions. The second disadvantage of late payments is that they drive up the cost of credit. Lending institutions have penalties for delayed payments. If you delay, you will end up paying more. Lastly, missed payments will make poor credit worse and take good credit down by several notches.
Understanding the terms of your loan :
Before signing a loan agreement, you should read and understand all terms and conditions. If you miss some terms, you might find yourself paying more than you had anticipated. For example, some lenders charge extra fees besides the interest. Knowing these fees will help you when drawing a repayment plan.
Maintain a record of all your debt obligations :
The human memory is not a reliable record keeping medium. People sometimes forget their debt obligations. They remember them only when the creditors demand payment. Like delayed payments, forgetting makes the debts pile up. It also increases the cost of credit. One way of avoiding forgetting debt is tracking it regularly.
The key to being a good borrower is being a responsible one. Never biting off more debt than you can chew and making sure to pay back every dollar ever borrower plus agreed upon interest is essential. The reward for responsible borrowing better terms in the future, making borrowing ever more in the borrower’s favor.
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