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Borrow money wisely to avoid a nightmare: Guard your long term goals

January 09th 2013

You're compelled to borrow money when there is a shortage of cash. Sometimes, you need cash to meet your short term financial goals. For instance: to pay medical bills, buy some items, pay credit card bills, etc. However, if you're not conscious while borrowing money, then your short term financial crisis can turn into long term financial problems. Read along to know about some borrowing options. Know about some wise and awful ways to borrow money.

Wise ways to borrow money

You can get money from several sources. However, if you don't borrow money from the right person/bank/financial institution, then you're most likely to face a financial disaster very soon. Go through the following lines to know about the wise borrowing options.

1. Family and friends: If you've a friend who can bail you out from financial mess, feel free to ask help from him. It will be better if you draw up a written agreement. The loan interest rate and repayment plan should be clearly mentioned in the written agreement. The consequences of missing out payments should also be mentioned in the written agreement very clearly. This will put your friend at ease. You can even pledge something as collateral against the loan. For instance: your ipad. You can keep your ipad with your friend until the loan is repaid.

2. Pawn shop: A lot of people think that it is not a wise decision to borrow money from pawn shops. It was true in the earlier days, but now things have changed. You'll have to keep an item (as collateral) in the pawnshop for a certain number of days. You'll get back the item after paying off the loan.

The biggest benefit is that there is no credit check. All you may lose is the item. You'll lose the item only if you fail to repay the loan.

3. Credit cards: You can borrow from your credit cards to meet sudden expenses. This is a much better option than payday loans. However, make sure you borrow an amount which you can afford to pay back later. Otherwise, you'll very soon get into debt troubles. Your credit score will drop if the debt is not repaid quickly.

You can use a reward card for purchasing something. This way you may end up earning some extra points for your purchases.

4. Credit card cash advance: Credit card issuers often offer money to their clients through an ATM. However, keep it in mind that this is not free money. You'll have to pay a fee of around 3-5%. Moreover, you'll have to pay an interest on the loan. In fact, the interest rate is much higher than that of the normal credit cards. This is one drawback of credit card cash advance.

Probably, the worst borrowing option is the payday loan. You can get a payday loan within a few hours of submitting the application. You can get a payday loan online nowadays. The payday loan company will credit the amount into your account electronically. Likewise, they'll also debit the amount (interest plus fees) from your account each month. This implies that payday loan lender will get the bank access details. This is not good for your financial house.

Payday loans will lead you to a vicious debt cycle. You'll borrow $150 from a payday loan company. This small amount will turn into thousands soon. Payday loan lender will tell you that you can roll over the loan without any hesitation. You're going through financial problems. You'll grab the opportunity and roll over the loan. What you won't understand is that interests and fees get accrued day after day. The debt amount will only increase with time.

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