Advice when borrowing moneyBorrowing can come in a variety of forms but the basics are usually the same. By borrowing money, you are taking credit and the associated risks involved. Done well, borrowing money can prove very useful and frugal but of course this is a decision that should always be well informed.

In this regard, here is some useful financial advice and tips that may prove helpful.

Overdrafts

It’s not commonly considered a form of borrowing but being overdrawn with your bank is essentially borrowing money. After all, you’re spending money which you don’t have and it can be charged against you depending on how long you don’t pay it back for.

Overdrafts can be complicated, often varying depending on the account in question, so don’t jump to conclusions and borrow carelessly.

Credit cards

Credit cards are known as a revolving form of credit. This is because, like overdrafts, they can be added too and paid off at any point. As such, managing the balance is more complicated but it gives you the option for careful borrowing when you need it most.

Of course, this also puts it in a similar fashion as overdrafts and a wise spender knows when they can borrow from a bank or when it’s better to use a credit card. Being able to determine which can save you money in the long run and reduce any associated risks is vitally important here.

Loans

The most direct form of borrowing, loans are the opposite to revolving credit. These are known as installment loans, since that is how you predominately pay them back.

Loans generally allow you to borrow larger amounts of credit in one go, with a fixed repayment plan put in place to handle paying the money back. Whilst this ties you down to some monetary commitments, it gives you access to a larger amount of money when you need it. It is also arguably easier to keep track of since you take out as much as you need at the time rather than adding to it as and when needed like with revolving credit.

Finally, this should show some of the complications and considerations involved in any form of borrowing; from overdrafts to credit cards and loans. External advice is always helpful, especially from someone who isn’t trying to sell you a loan themselves and as such talking to a company like LoansAdvice.net is always advisable. For a neutral opinion that isn’t biased, take a look at their website today.

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33 Comments

  1. I just hate the thought of debt. We are considering taking out a mortgage on a new house (our current home is paid off) and we are having a tough time with the decision. Even though we are buying an asset that we can sell to pay off the loan at any point, we still are uneasy about it.

  2. I never paid it any attention or gave it any thought but you are right OD’s are loans. If you high interest one’s at that considering you could pay$25-35 dollars for borrowing 10$. The one debt we did get with open arms was our mortgage. We just didn’t see any other way to get the home we wanted. Plus I don’t think we would have tried to pay cash for a house anyway.

    1. Over drafts are never really thought of as a loan, but they give you the difference and then just charge you an outrageous amount for the convenience.

  3. We need to be smart about borrowing and make sure that we are borrowing for the right reasons. We did take advantage of a Menards credit card in January to finance the purchase of new appliances for our studio (interest free for six months). This sort of borrowing that is used to generate revenue or invest in something we need is the best form of borrowing.

    1. I agree with you DC. We got a Lowes credit card to save a lot of money on our fencing material and then we paid it off within the promotional period. We have never used it again.

  4. Debt can certainly be helpful in the right situations. It’s important not to paint any one tool as good or bad, but to understand it’s strengths and weaknesses and how you may or may not be able to use it to your benefit.

  5. Like others have said, I think there can be times where you can wisely use debt as a leverage to better yourself financially. It requires you to do your due diligence, but it can be done. As someone who used to work in a bank, it’s crazy to see how many regularly OD their account – I would communicate to them that they were essentially taking a loan and rarely would it compute for them.

  6. $15,493 on a HELOC at 4% and I am considering changing to a traditional mortgage to lock in at the great low rates.
    It weighs me down and keeps me from starting my retirement savings.

    My sons have student debt and that is good debt as they will both get much better jobs because of their educations. They have both overspent and it will take them an extra year or two to pay off the beer, concert tickets, restaurant meals and stuff they just had to have.

  7. I have used overdrafts by mistake mainly, forgetting to fund an account but thankfully one of my banks has a free one and the other one has a very low rate. Credit cards can be handy to get a month interest free while you get back on track but if you need more time better try to get a loan with lower interest.

  8. I would say if you need a bigger amount, its better to take a loan. But yes, you should be well informed and do proper research before taking any kind of loans. Don’t forget to check out the interest rates and compare them before taking one.

  9. The reality is that debt and leverage are how this country was built. Is it always done properly? Is it right for everyone? Absolutely not, but at the same time, credit is a valuable that when used properly can be life-changing in a positive manner. It’s just too bad that people only concentrate on the negatives and the stories of misuse all the time.

    1. You make a great point Eric. Almost every country uses credit for different things and it can be done wisely, but more people have to be educated on how to use it properly.

  10. I’m not completely against borrowing, but I definitely don’t like it. I don’t really see a need for loans, unless it’s a mortgage for buying a home, but I do see the benefit of credit cards. My wife and I use our rewards credit card all the time, but pay it off fully each month. That way we reap the benefits of the rewards, but don’t pay any interest on it. If you use credit this way, then I think it’s a benefit.

    1. Well, the benefit of a loan is to get something when you don’t have the cash on hand. Now, our society has become a “need it now” one and that is where loans have gotten out of hand.

  11. We see so many people misuse credit, but credit itself is not bad. It’s how we chose to use it. Some use it to live beyond their means and believe credit is just extra money available to them. Others use it to leverage a business opportunity or buy home – something that will hopefully earn money.

    1. Credit is just a tool in people’s financial toolbox. Unfortunately, they reach for it more than they should and then get overwhelmed.

    1. I like the way you think Kim. I have thought about some things that I could use a loan for, but I would have to weigh the pros and cons.

  12. All three types of borrowing can be pretty dangerous. The installment loans can kill you if you take too much, credit cards can on the other hand keep you in never ending debt cycle. The best would be no debt at all if possible (except mortgage probably)

    1. Agreed, but you can really flourish if you use credit the right way. Credit is not bad, it is just how people use them.

  13. Before I got a cash advance from my credit cards due for emergency. I only did this because my I received my salary late for two months or three.

    1. Cash advances are dangerous and they should only be used in an emergency situation. It appears that is what you used it for.

  14. Definitely need to be careful with taking out loans and charging up credit cards, but not all debt is necessarily bad. Alot of us just starting out will probably need a mortgage loan for a house. Or student loans for college. And credit cards can be useful in helping you save money with cash back if you pay them in full. Basically just don’t overspend or take out bigger loans then you need/can handle and the debt isn’t necessarily “pure evil” even if it can be uneasy.