How to Borrow Money Wisely

Borrowing money can be a solution to various financial situations but utilising credit effectively involves understanding your income and consequently knowing when it’s the right time to borrow money. Not every situation needs to be resolved with credit but when you do choose this option it should be directly beneficial to you and your finances.

Types of credit

Using credit may be common but that doesn’t mean there is only one type available. Banks and other creditors offer large scale loans, often with a specified purpose in mind, while smaller short-term borrowing is typically designed for emergencies.

Alongside cash loans, credit cards offer rolling credit agreements to allow small amounts of borrowing to be made more frequently over a longer time period. You can research credit cards online easily and efficiently and the results generated will prove just how useful these products can be.
Understand your income

The key part of borrowing money is being able to pay it back. As such, it helps to have a deep understanding of your income and this includes knowing how much spare income is available each month as well as how much can be freed up with budgeting.

These two figures give you a rough area of how much you can afford to borrow. Any more than this and you may struggle to pay it back – leaving you in further financial difficulty.

With credit cards, many of them won’t charge you interest if you pay off the balance on time and that means understanding your credit limits is vital. If you know you can afford to borrow (and repay) ?200 then your credit card becomes a vital payment tool that bolsters your credit rating.

Knowing when to borrow

Evaluating your budget may be relatively easy but how do you know when to borrow money? Typically there are two instances when you borrow money – to fund a larger purchase via small payments distributed over a long time period or to make purchases you can afford now but delay payment to improve your credit rating and add security to your purchase.

The first of these options typically involves loans and can be for products or services ranging in size. The latter is more aimed at credit cards where purchases are protected, making them an attractive option.
When deciding if now is the right time for you to borrow money the most important thing you should look at is whether you can afford it. Borrowing responsibly is the key to staying on top of your finances and irresponsible borrowing where you are surviving off of credit is never advised.