Five Questions to Ask Yourself Before You Borrow Money
Borrowing requires careful consideration; always ask yourself whether it is the right decision as it involves making a commitment which, if not fulfilled can result in serious financial consequences. With the following five questions, you can make the right decision and avoid financial pitfalls.
Is it really necessary to make the purchase?
You may be borrowing money to make a specific purchase; you’ll need to ask yourself whether what you are planning to buy is really necessary. Is it something which can be postponed until you have saved enough money to buy it outright? If it is something that you probably cannot do without, borrowing can be a good option but if it’s a purchase which will be used for luxurious purposes perhaps it’s reasonable to not buy it for the moment.
Can you still manage with a less expensive purchase?
The beauty in life is that there are alternatives; for one thing, there are several options when it comes to purchasing. Whatever you are planning to buy may be highly priced for reasons such as branding; it may benefit you to consider a cheaper but quality alternative. This means you will save money and avoid borrowing while still purchasing the item you want.
Will I be in a position to pay off the debt?
Once you borrow, you’ll be required to repay the amount advanced including the charges and interest. The question that you need to ask yourself here is whether you’ll be in a position to make regular installments. This will require you to assess your current and future financial obligations as well as income. If you find that the amount available will be less that what you may need to meet your budget as well as making regular loan repayments, you are better off using alternative means to acquire what you need or postpone the purchase until you get the required cash.
Will I be able to pay it off fast?
To reduce the cost of the loan, it is a good idea to pay it off as quickly as you can. You’ll have to consider how long it will take to make your payments. If you cannot manage quick payment, maybe you need to reconsider your decision.
What if I am unable to make regular payment?
Defaulting on a payment can have serious consequences and that’s why you need to consider in advance what would happen in the event that you’re unable to make payment.
It’s only after considering these important questions that should you make a decision whether or not to take out a loan.