Wednesday, March 28

When Not to Borrow Money

Sure, we'd all like to be independently wealthy, never needing to borrow money. But most of us aren't, and from time to time we need to borrow money. The key word however, is 'need'. How do we know when we have a true "need", or when we shouldn't be borrowing?

Okay, you know that you don't really need this thing that you want; you just want it! If you're prone to this type of thinking, the big risk is that you borrow too much, and over extend yourself. You don't want to borrow more than what you can comfortably pay back. As mentioned in a previous post, credit can have the effect of making some folks feel like they have more money than what they really do. When in reality, credit just enables you to get something, or solve a problem sooner than later. It kind of eliminates the need to 'save up' to make a purchase, or to save up for a rainy day (a rainy day could be compared to a problem...). Too many people borrow instead of save. By over borrowing and not budgeting, they get in over their heads which can lead to financial disaster.

Whether you can afford it or not, credit increases your temptation to buy. Sleep on it first to find if you are buying emotionally or out of need. In other words, are you succumbing to temptation or are you buying because of a real need? Would you rather sleep on it first, or realize you didn't really need (or want) it after you've started making payments?

Just be sure that you really need and want it when taking advantage of easy credit terms, deferred payments, and zero percent financing offers. Make sure you understand what you're getting before you get it (balloon loan, etc.).

And remember, all credit comes with a price for early gratification!