Do You Really Need to Borrow?
Before you apply for a shiny new credit card or sign up for personal loans, it is just common sense to think carefully about whether you really do need to take on debt. In these fraught financial times, many people are opting to repay their current debts before even contemplating taking on any more.
There are a number of factors to reflect upon before applying to borrow any money. You should think about whether you actually need whatever it is you are thinking of spending the money on, if there are any other ways you could finance the purchase, and whether you have a rock-solid repayment plan.
If you tend to be a ‘impulse shopper’, be strict with yourself and set a cooling-off period. You may well find that, after a few days have passed, you no longer really want whatever it was you had set your heart on.
Ask yourself whether you could afford to find the purchase without taking on any debt. If you really need it, there may be others ways of getting it (perhaps buying it second-hand or via a site such as Freecycle), or you could commit to setting an amount aside every week/month until you have saved what you need. Rather than wasting money on something that is not essential, you would be far better off setting aside any spare cash you have to build up some savings.
One exception to the rule is if you are a careful and organized borrower. In that case, you could consider taking out a 0% credit card and repaying the balance within the introductory period. In this instance, you can essentially buy what you want without paying any interest. This is only really an option for those with a high credit score. And should you fail to repay during the 0% period, you could find you are hit with high interest charges when the rate goes up.
If you decide that you do want to borrow some money, there are a number of things you should bear in mind. The first question to ask yourself if how much you can credibly afford to borrow. About 60% of UK borrowers pay their credit card off in full each month. Even if that is unachievable, you should aim to pay off as much as you can, as that way the debt will be cleared as soon as possible. If you are planning to take out personal loans, make sure that you only borrow what you need and no more. If you know that you will have to stretch to make the repayments, this route is best avoided.
You need to think ahead and work out whether you would be able juggle all your financial commitments if, for example, your rent or mortgage were to rise considerably or you lost your job.
You must also ensure that you pick the right type of credit to best suit your circumstances. Always shop around and research the market before signing on the dotted line, or you could find yourself paying well over the odds.