Fundamentals of Borrowing
Unbiased financial information provided by Financial Wisdom.
The sensible use of debt should be part of a sound financial strategy. Debt can enable you to enjoy things that otherwise are currently beyond your reach. Borrowing can also have an ugly side. Too much, too expensive or the wrong kinds of debt can make life miserable. Developing good borrowing habits early can help you avoid a lot of anguish later.
| Fundamentals | Related articles |
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The basics – Borrowing costs money. That is not necessarily bad. It just means that when you pay it back, you have to pay more than you borrowed. The components of a good debt strategy are quite simple:
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Developing and Using a Wise Borrowing Strategy |
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The importance of a good credit record – A good credit record does more than just make future credit approval easier to get. Most lenders use your credit record to determine credit limits and what rates to charge. A good credit record will save you money. A program enables you to get a free credit report once a year. You can request your free report at their website – www.annualcreditreport.com. Otherwise you can order a report from one of the three large credit reporting agencies. Order your credit report:
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Review Your Credit Report Don’t Let Anyone Steal Your Credit Identity |
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Common sense borrowing habits
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| Getting help if needed – Take action immediately if your borrowing is getting out of control. If credit cards are the problem, stop using them or even cut them up. Contact lenders to develop a workable repayment plan. A qualified credit counselor can help. | Reducing Your Debt Burdens |
| Consider all the terms on all your borrowing – Comparing credit cards can be confusing. You have to consider interest rates, fees and associated benefits. The right card for you should reflect how you use it. If you pay the full balance monthly, the interest rate is of little concern and you can focus on any annual fee and benefits such as airline miles or cash back features. If you carry over balances, the interest rate should be a top concern. The right mortgage for you should balance interest rate, length, and down payment requirements that fit your situation. Adjustable rate mortgages usually have lower rates, but your payments may rise if interest rates rise. Long-term mortgages usually lock in a higher rate. If you expect to stay in your current home only a few years, an adjustable rate mortgage may be best. If an increase in monthly payments would be too painful, look at a fixed rate mortgage or an adjustable one with rate adjustment limits. | Guidelines for First Time Credit Card Users Evaluating Mortgage Types |
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Prioritize borrowing based on long-term value
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Summary
Being conservative in your use of borrowing can help you take control of your financial future. Borrowing for the right reasons and living up to your repayment responsibilities can make borrowing a useful financial tool.
