There is plenty of advice online about how to save money for your household budget. Many experts will make it clear you should stop borrowing, and put aside money for rainy days, build up a good savings account, and free up cash in as many ways as possible.
But the reality is that the vast majority of us have to borrow – it’s part of modern life. And for many households, it’s the cost of borrowing that often causes so many financial issues.
With this in mind, we’re going to explore a few ideas with you to ensure you aren’t getting ripped off by lenders, services, and utility companies, and borrow at the lowest rates possible. Let’s take a look at some of your options.
Fix your credit score
First things first, your credit rating has the most significant impact on your borrowing costs. If you have a low score, lenders see you as a risk and raise your interest on a loan or credit card in accordance with those risks. There are many ways of improving your score, but your priority should be paying off any bad debts you might have picked up over the years. It’s these that are doing the major damage. Also, keep borrowing – but make sure you are paying everything off as soon as possible,. Whether it’s payday loans, credit cards, or car loans, it doesn’t matter. If you borrow and pay everything back on time, it will show you are responsible borrower, and your credit rating will improve as a result.
Borrow only when you need to
As we discussed everyone needs to borrow money to live in the modern world. Without lenders, we wouldn’t be able to buy houses, cars, or start businesses. However, it’s essential to stop borrowing for unimportant and unnecessary things. You should never put a night out on your credit card, for example – and certainly not use the card to draw out cash. There is always a cost involved with borrowing, so it makes sense to limit those costs – and your borrowing will automatically be less of an expense.
Only borrow what you need
As a rough guide, you should only ever have total monthly debt payments adding up to no more than a third of your monthly income. If you go above 40%, new lenders will charge you extortionate rates of interest – if they allow you to borrow at all. Also, just because your home loan company offers you $300,000 for a mortgage, it doesn’t mean you need to take it. Sometimes, you’ll find that taking a smaller amount will result in lower interest fees – and you can pay off your debt a lot quicker as a result.
Start shopping around
Once your finances are in a better position, you will find it’s possible to shop around with a little more verve. And it can save you a fortune – especially for significant payments like buying a home or a car. When there are tens or hundreds of thousands of dollars on the line, even the slightest fraction of a percentage can save you – or cost – you a small fortune. So, get used to shopping around and investigating your options before agreeing to any lender’s terms.
Start switching
Don’t forget, utility companies work on a lending basis, too. They will run the exact same checks as any other credit provider, and once you go past that initial offer that attracted you in the first place, they will often raise their prices. Don’t stick around and wait for them to charge you more – look around and find an alternative supplier. All suppliers of energy and utilities tend to hook new customers in with their best deals, so don’t be loyal – always be a new customer instead.
Plan ahead
Finally, don’t leave it until the last minute to borrow money, and always plan ahead a much as possible. When you are pushed for time – in an emergency, for example – you will often have zero choices on the loan you take out. With time on your side, however, you might be able to spend a while trying to negotiate, looking at alternative borrowing options, and get approved for certain types of loans and credit cards that have better terms but longer application periods.
As you can see, the costs of borrowing money can soon add up, which can have a devastating impact on your household finances. The trouble is, most of us have to borrow – it’s unavoidable in this day and age. However, following the tips listed above should help you get the best deals for loans, mortgages, or credit cards.
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