As you may have seen, we are in full swing with our series where we try to sort out various misconceptions and inaccuracies about loans, finances, debts and insurance etc. We are still on loan because there are some such to chew through. Today I was going to put some focus on two statements that contradict each other but are not necessarily correct. marthamihalick.com for further clarification
“You should never take out a loan if you have bad finances”
If your finances are unstable or bad, it is usually not a good idea to borrow money. A loan costs money just like most other services, and even if you get a supplement of money when you take out your loan, you will soon have to repay that money again and you will then also have to pay interest and fees.
A basic rule is therefore not to borrow money if you do not feel confident that you can repay the loan according to what has been agreed with the lender plus that you can also afford interest and fees. Not repaying the loan on time often means expensive extra costs in the form of interest rates and the like, which only makes it worse for someone with a weak economy.
There are times when a loan is right after all
Although we advise you not to borrow when you have bad finances, there are, after all, occasions when a loan is right. First, bad finances do not mean that you cannot manage your loan. If you are convinced that you can manage the loan (for example, have made a budget where your loan is included and it goes together) then you can of course borrow if you feel it is really necessary.
What I especially thought of for those who have bad finances, however, is the type of loan that is there to help you improve your financial situation. It is then usually about collecting their loans – which means that you take a big cheap loan (usually a private loan or if you can borrow on a home it is preferable) to pay off expensive small loans.
This solution is for those who have accumulated various small expensive loans and credits such as micro loans, smaller private loans and installment purchases that have high costs every month. By taking a single large loan that has a low interest rate, you can repay the expensive small credits and thus free up a lot of money that would otherwise have gone to expensive interest rates and fees every month.
This is a good solution for you with expensive debts but it does not always work. You need to be able to get a big loan first in order for it to go the way and it is not at all certain that a lender will give you a loan if your finances look too bad. You often need a reasonable income, preferably be free of payment remarks etc. There must be a plan for how to solve your financial problems and you have to show your will to be better.
If you can get your loan, it will be possible to pay off the old debts. The goal is to get rid of expensive debts where you pay a lot in interest and fees every month, thus reducing your monthly costs. If you can reduce them, you can then also start saving money and of course take care of the payment of your large loan.
“I need to borrow to manage the economy”
Sometimes when you have bad finances and the money is not enough, it may feel like the only solution is to take out a loan. What you should not forget is that a loan is often only a temporary help on a permanent problem. It’s like putting a patch on a bullet injury. It may help at the moment but it is no solution in any way.
As I just wrote above, the right type of loan can help you if you have various smaller debts that cost a lot each month but what you shouldn’t do is borrow money just to pay interest on other loans or debts or to use a loan to cover costs and push the problems in front of you. Every time you do something like that, you just dig your pit a little deeper and it will be harder to get out of it again.
Of course, it is sometimes difficult to know what to do when you have problems and the money is not really enough. Borrowing money may be one way to solve an acute money shortage so that one can pay a bill that must be paid, but the solution to the financial problems is usually found elsewhere.
How do you get out of your financial problems?
It is not easy to say exactly how to go about coping with financial problems because everyone has their own problems and needs their own solution. However, there are various things you can do to work towards a better economy and it is everything from gaining control of your finances with a budget to trying to save money where possible or actually contacting creditors to find a solution. which benefits everyone.
I am not going to try to go through what to do here in the blog post as I would have to write a whole new series just about this topic in that case, but I can link to our section which deals with solving financial problems. There are many good tips that could possibly help you in a better economy. Just remember that loans are usually a bad idea when you have a bad financial situation.
- Read about Debts, debt restructuring and how to avoid debt
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