When it comes to finances, most people can’t afford to borrow money. With the right credit and a good plan in place, borrowing money can be one of the smartest things you do with your hard-earned cash. But how do you know if you’re prepared for getting a loan?
Here are five steps that will help ensure your success:
1) Make sure your credit is in good standing
You need to have good credit if you want personal loans, so the first step should be to make sure your credit is in good standing. Don’t worry too much yet, though; it can easily take years for a mistake or even identity theft to show up on your credit report.
2) Figure out how much money you’ll need
You don’t want to borrow more money than you need, but how do you know how much that is? Ideally, the amount of money you borrow should be less than what you can reasonably pay back in three years while keeping some savings for emergencies.
3) Figure out which loan would work best for you
Some loans are better suited to certain people and specific situations than others. For example, if you’re still in school or work for the government, Parent Plus loans could be a good option. Just make sure you check parent plus loan interest rates before you apply. But what if you already have a steady job? Well, your best bet might be taking out an auto loan.
4) Create a plan
What happens when something goes wrong? That’s where your backup plan comes in. For example, what will you do if you lose your job? Or what will you do if the value of whatever it is that you’re buying falls to half of its original price before you finish paying off your loan? These are just some of the questions that should be answered in advance. If there’s no way for things to go wrong with your plan, then you probably need a new one.
5) Stick to the budget you’ve created
No matter how much you borrow or what kind of loan it is, it’s only going to be a good idea if you have money left over at the end of the month. Outline a detailed budget and follow it no matter what happens. Borrowing money should never put your financial security in danger. If it does, then you’re borrowing too much.
6) Evaluate your success
If you think borrowing money was the right thing to do, great! If not, then it may be time to find out where things went wrong. Make sure that you have enough emergency savings, can still keep some money aside for fun and that borrowing isn’t going to leave you or your family in a difficult spot. Whatever happens after borrowing money, make sure it’s something that has a good chance of working out well. That way, everyone can benefit from the decision.
7) Repeat the process when necessary
The best way to be sure that you’re borrowing money responsibly is to repeat it. Whether it’s after college, to buy a home, or just for emergencies, borrowing money should give you something in return. So if your plan still looks good even after giving back your last loan, then do it again! Just make sure you know what you’re getting into this time before signing any papers.
If you follow these guidelines, everyone will benefit. Borrowing money can help further your plans and dreams while also helping improve the lives of the people around you, but only if it’s done right.