When you use credit well and wisely, it can help you to achieve your life goals. But there are risks with taking a loan. Debt is not your enemy. Bad personal finance habits are. Therefore you should think carefully about when and how much to borrow.
When you pay with cash, you can often negotiate a cash discount. You’ll also pay less because you won’t pay interest, fees or other charges, and you won’t have to worry about keeping up with repayments.
There are good uses for credit, and bad uses. Good uses are, for example, to buy a large asset, such as a car or a house, or to deal with an emergency, such as an accident or an operation. It is a bad idea to use one loan to pay another, or to take out a loan to pay for things you really cannot afford, to gamble or to keep up with your friends.
To stay on the good side of credit, ask yourself these questions before you borrow:
- For what am I borrowing?
- Is a loan really the best way to pay for it?
- Can I afford the monthly repayments?
- Is now the right time to borrow?
- How stable is my job?
Once you are sure that you are borrowing for the right reasons, follow these 6 steps to borrow wisely:
- Look at your budget to find out how much money you have available every month for repayments.
- Get a copy of your credit report to see what your credit profile looks like. A healthy credit profile means that you can negotiate better terms with credit providers.
- Shop around for the best deal. Look at what different companies offer to find the deal that best suits your needs. Don’t be tempted to borrow more money than you need.
- Ask the agent as many questions as possible, so that you understand all the fees and charges, as well as the credit agreement’s small print.
- Make sure the credit provider you choose is registered. Never borrow from informal lenders (mashonisas) that do not comply with the law. You have to now that your rights as a consumer will be respected.
- Once you have chosen a credit provider, go back to your budget to see if you can afford the monthly instalment shown on the quotation and still have money left to save for emergencies. If the answer is yes, you can proceed.
A great credit tip is to borrow as little as possible so that you can pay more than the minimum instalment every month. Why? If you repay the loan quicker, it will cost you less because of the interest you save.