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If you’ve spent more than 10 minutes reading about personal finance you know it's a really bad idea to borrow money. Almost the first thing every book on personal finance preaches is “don't borrow money”, “don't get in debt,” “shun debt like the plague“ etc. and etc. And in most cases this is good advice. When you borrow money you're really borrowing from a future you. You get to use the money now but it won’t seem like such a good idea several years from now when you're still trying to repay it. Debt is basically a financial parasite that sucks money out of your future earnings leaving you with less to save or spend.
It's tough to earn a living if you don't have access to an automobile that you can rely on. If you‘ve had a car accident that wasn't covered by your insurance or a major repair bill that you didn't expect your access to reliable transportation could be seriously affected. If you’re your unable to work out an affordable repayment plan with the car repair shop then a better option could be to take out a personal loan to pay for the work. Again, this could be a much better option than putting the repair bill on a credit card because that loan should have a lower interest rate than your credit card. In addition, when you charge things on a credit card and can't pay off the balance at the end of the month, you become the victim of compounding interest. This is where the credit card companies make the real money because you’re paying interest on interest. In comparison, most personal loans are based on simple interest, which is a much better deal.
#5. When you want to make home improvements but don't have enough equity
How much equity do you have in your home? If you're not familiar with equity it's the difference between what your home is worth and what you owe on your mortgage. As an example of this, if your house were worth $100,000 but you owed only $80,000 on your mortgage, you would have $20,000 in equity. If this were the case you could take out a home equity loan or homeowner equity line of credit to finance the home improvements you would like to make. For example, you might want to update your kitchen, add outdoor features or replace your roof. Taking out a personal loan to finance these additions or renovations could be a good idea because they should add value to your home.
If you must use a credit care
If you find it necessary to put medical bills, an interstate move or a car repair bill on a credit card the critical thing is to not make just the minimum payment as this is where compounding interest will cost you big money ... as explained in this video.
A tool for managing your finances
A personal loan when used for the right reasons that has a low interest rate and fair terms can actually be a great tool that can help you manage your personal finances. However, it's important to think things through carefully and maybe even sit down with a lender to discus your options before taking out a personal loan. And it’s critical that you get a loan with payments you can afford and then make those payments on time every time.