Anytime that you borrow money you need to carefully consider if it is the right decision for you. Borrowing money means that you are committing to pay the money back within a certain time frame. You need to consider how borrowing money will affect your finances in the future. You should ask yourself these questions before you borrow money.
Do I Really Need to Make This Purchase Now?
Often things that seem necessary really are not. You can postpone most purchases until you have saved up the money to buy the item outright. While it may not be convenient to go to the laundry mat to do your laundry, you will save money by paying cash for the item. If it is for something that is recreational such as boat or jet skis, you really can save up the money to buy the items, because they are not necessary purchases. In fact, you may save up the money more quickly than you expect because you are motivated to make those purchases.
Can I Purchase Something Less Expensive Instead?
Often when you are making a big purchase you want to buy the nicest that you possibly can afford. However, you can achieve the same results by scaling back how much you really need. For example, if you are purchasing a car, you may consider spending five thousand on the car instead of ten thousand. You can still find a reliable car for five thousand, and you save yourself that money to use towards saving and investing in your future.
Can I Afford to Make the Payments?
This is an essential question to answer honestly. You should consider the limits that this purchase may make on your ability to do things in the future. You may not be able to take as many vacations because you do not have the ability to save money as quickly. Additionally, you may be squeezing the budget so tight that it is extremely difficult to do anything. You may come to resent the purchase, and wish that you had never made it.
How Fast Can I Pay It Off?
When you take out a loan you should focus on paying it off as quickly as possible. It is important to realize that it is very difficult to build true wealth when you are consistently paying interest to others. When you can turn this around and begin earning money with your money, you will be able to reach your financial goals. That is why it is important to carefully consider all options before you borrow money.
What Happens If I Can't Pay It Off?
You should also consider the long-term effects if you were to lose your job. This means that you have extra pressure to find a new job quickly, because any late payments or skipped payments will affect your credit score. Depending on the industry you are in, you may have a difficult time finding a job if you have a poor credit history. You need to consider how you will pay this loan off if you were to lose your job.