How to borrow wisely to make it easier to use credit



Q:




I moved from an undergraduate program in college to a two-year degree program at a technical school in order to be more employable while I work on my related degree. However, my college course load was flexible. I lost that with the diploma program. This is a full-time course load with lots of homework. In order to maintain my high grades, I had to reduce my work time, which leaves me strapped for money. I’m trying to decide if I should take out a student loan or not. I was recently approved for a credit limit increase on my credit card, which will help me as well. What should I consider before applying for a loan? ~Ethan




A:


Continuing your education and making sure you have marketable skills when you’re done is a wise course of action. There are many ways to do this, and it sounds like you’ve thought about how to achieve your educational and career goals. However, I encourage you to expand your planning to include making smart choices for your finances as well. How you manage your money and how much credit you use while pursuing your education will have a direct impact on the decade after you graduate.


Borrowing money is a big decision. This involves researching rates, choosing the right product and lender, and entering into a legal contract with terms and conditions that work for you now and for the long term. While some forms of debt are seen as good and some as bad, we all know what they say about too good a thing!


Here are some tips to keep in mind when making your borrowing decisions:



Determine how much you can afford for payments





When applying for a loan, it is important to


think about your budget


. If you haven’t set your budget, this should be step 1. You need to know where you stand and if you can afford other payments before speaking with a lender. A lender will calculate how much they can lend you based on your gross (pre-tax) income. This is very different from balancing your overall expenses against your net income (after tax).


Student loans are unique. Payments are not required as long as you remain in school. Although initially this makes it easier to get the loan, it masks what you will face once you leave school. Payouts can be substantial if you’ve used


student loans


to finance a lifestyle and not just your studies.



Decide how much money you need to borrow





Decide for yourself how much you need or want to borrow before speaking with a lender. Borrowing as much as a friend, family member or colleague is not a useful measuring stick. Unless they make your payments for you, only borrow what your budget realistically allows.



How much debt is too much?




Determine why you need the money





Part of deciding how much to borrow comes down to determining why you need the money. If you need money for a particular purchase, such as a laptop computer, versus assistance with living expenses, such as those during a two-year program, it may be easier to determine how much you you need. However, let your budget guide you. This will also be the best way to determine your monthly shortfall if you need small amounts of money over a period of time.


Because credit comes at a cost, if you run out of money each month, before considering a student loan or supplementing your income with a credit card, ask yourself if there are other options to fill the gap. difference. Can you temporarily reduce some of your expenses? Is there any chance you could take on a roommate or sell your car to eliminate the monthly loan payment? Could you take a job at a restaurant to get some of your meals for less? Managing our finances and balancing our budget always comes down to a series of small decisions. Do them wisely and adjust them as your situation changes.



Why a payday loan won’t solve your money problem




Find the best way to borrow what you need





Borrowing wisely and using credit wisely are related, but they are not the same thing. Before taking out a loan, credit card, cell phone contract, mortgage, student loan, or any other form of credit, research the right product, lender, interest rate, and terms and conditions. Although you can do some of your research online, it will be important to speak with various lenders to fully understand your options.



What do lenders look at when you apply for credit?





With some forms of credit, you will borrow a specific amount and be required to make fixed payments over the life of the loan. A car loan or even a mortgage works this way. With other forms of credit, you are approved up to a certain limit. Credit cards and lines of credit work this way. You are then only responsible for payments on the part you use. Although payments may initially be smaller, the temptation to spend up to your limit is greater. This is where borrowing wisely collides with using the credit you have been given wisely.



The essentials for borrowing money wisely





Some forms of credit, such as a student loan or mortgage, can get off to a good start and seem like a smart borrowing choice. However, when you overwork yourself, even debt that creates value or wealth can turn bad. If you need help making sure this doesn’t happen to you, contact a


non-profit credit counseling agency in your area


. They’ll be happy to walk you through the steps to borrow wisely, use credit wisely, and know what you’ll be up against when it comes time to make payments. And if you’re already overwhelmed, they’ll be happy to help you get back on track.



Related reading:




5 warning signs that you have too much debt




Are you away if you don’t have a credit card?




The 5 Best Things Young Adults and Graduates Can Do for Their Finances




Scott Hannah is president of the Credit Counseling Society, a non-profit organization. For more information on managing your money or debt, contact Scott by


E-mail


Check




nomoredebts.org




or call 1-888-527-8999.



Copyright Postmedia Network Inc., 2022

About Thelma Wilt

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