If you are the kind of person that worries about money and you are always looking for ways to improve your finances, you might think that borrowing money is never a good idea. In most cases, borrowing money can get you into a lot of trouble. Everybody knows that going on a shopping spree with a credit card is an easy way to get into a cycle of debt and, if you can avoid it, you shouldn’t buy things that you can’t afford to pay for right away. However, not all borrowing is bad and there are actually some good reasons to borrow money. These are 5 times when borrowing money is a good idea.
Buying A House
The most obvious time when borrowing money is a necessity is when you are buying a house. Most people aren’t lucky enough to be able to buy a house outright, so you will always need to borrow. Even though a mortgage is a loan, you shouldn’t consider it in the same way that you would think of a personal loan or a credit card because, as long as you stay on top of the payments, it shouldn’t land you in any trouble.
Building Your Credit Rating
Whenever you buy a car or a house or even take out a phone contract, you will be subject to a credit check. Unfortunately, building a credit rating is tough for people that avoid borrowing, so even though you think that you are being sensible, you may be causing yourself problems in the future. Making payments for bills on time does improve your credit score a little but borrowing money has a much bigger impact. There are some great credit cards that are designed for people that want to build credit. Just make sure that you spend money on the card and then pay it off right away so you don’t end up with a lot of debt.
Getting Out Of Debt
Some people avoid borrowing from the start, but others decide to swear off borrowing because they are already in a lot of debt. However, borrowing can actually be an effective way to get out of debt as long as you do it in the right way. You can take out a new loan to consolidate your debt into one single payment and this benefits you in a few ways. If you have a lot of different high interest debts, it’s unlikely that you are paying much off the balance each month because the interest is so high. A debt consolidation loan will help to reduce those interest payments and save you a lot of money. Having one single payment to manage also makes it a lot easier to organize your finances so you can get on top of that debt a lot quicker.
Remodeling Your Home
Taking out a personal loan to cover living expenses is not usually a good idea. If you don’t change your financial habits, you are just taking a loan to plug the gaps and when the payments kick in, you will be in a worse position than before. However, taking out a personal loan to pay for a home remodel is a very good strategy. It’s important to remember that the improvements that you make to your home will increase the value of your biggest asset. When you eventually come to sell your home later on, you will make back all of the money that you borrowed, so it’s a good investment to make.
Financing A Car
When you need a new car and you don’t have the cash to pay for it outright, you will be offered a finance option by the car dealership. If you can’t live without your car, you don’t have any option apart from borrowing. However, the financing that the dealership offers you is not usually the best option. The interest rates can be quite high and there are a lot of hidden charges, like balloon payments, which kick in later on. But if you shop around, you can probably find a better deal elsewhere. Banks will offer you a car loan and there are private lenders that also specialize in car financing. If you look around, you should be able to find a much better deal, so don’t take the first financing option that you are offered.
It’s natural to be apprehensive about borrowing and, in a lot of cases, it will land you in financial trouble. However, in these situations, borrowing is the right thing to do and it will improve your financial situation.