Most of us tempted to spend more money than we have because of the availability of loans and credit cards offered by financial institutions. They offer money and credit loan for us to buy a house, a car, pay our bills or spending for our lifestyle. But don’t get wrong, it is not just easy as you need to pay more for their money.
REMEMBER !! Before borrowing money, make sure you can handle it in the future. You must have in your mind that you want to own more than you owe so make sure the money you borrow could make more money than you borrow and probably more than the interest.
When you want to take a loan or use credit card, ask yourself these questions :
- Can you afford to pay the instalments in the future? You must plan before take the loan. Look at your monthly budget, you must ensure that the instalment won’t make your amount become surplus. If yes, think again.
- Is the product or service is important to use loans/credit card? Many people pay electrical household using credit card. It is not a good practice. For me, loans only use for car, housing, education while credit card only use for hotel, domain name, online business purpose only. Try to use cash or debit card as you won’t spend more than you can own.
- Can you afford to put down a larger down payment? Things such as car or house need a down payment. If possible make larger down payment for these things.
- If it is something you desire, can you control the feeling and delay your decision to buy it? For example, you want to buy a washing machine which is cost around RM1,000. Could you buy second hand or maybe wait until you can buy cash? It is much cheaper and you can avoid the interest from the shop.
- Do you understand the consequences of failing to repay money you borrow? There’s a legal action could be taken if you fail to repay money you borrow. You need to know the consequences as we don’t know the future. If possible, get advice from legal friends.
- Do you know how much the borrower get from you? Mostly they get profit from the interest. Do you calculate their profit? Is it more than 100% from the amount you borrow? If yes, compare with others borrower.
Take a loans or credit card is a long term commitment. You need to give up something to make your monthly loan payment. Are you prepared to make this trade-off? You need to change your lifestyle. If before this you can go to cinema every week, with this commitment you need to give up.
No matter how careful you have worked out your monthly cash flow to pay your loan payment or credit card debt, something unexpected or an emergency can happen and you will need extra cash. That’s the important of Emergency Fund that you save every month.
It is also important not to over commit on loans and purchases using credit card. The important rule is your total monthly loans and credit cards debt should not exceed one-third of your gross monthly salary.
Never ever borrow money from a loan shark because you will :-
- Get a loan on very strict terms and conditions.
- Have to pay a very high rate of interest with daily compounding effect
- Be pressured into borrowing more from the loan shark to repay one debt after another
- Open yourself and your family to harassment if you get behind on your payments.
Make sure you get from the licensed financial institutions. How about your loan and credit card? Do you plan on it?
Reference : AKPK Money Sense – Getting Smart With Your Money