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Credit Wisdom: 3 Indispensable Rules To Avoid Drowning In Debt

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If there’s one bit of wisdom that my old man completely hammered into my brain, it’s the wisdom that it’s better to have zero than to have negatives.

I was always reminded to live within my means, and if my pride could handle it, he might have even told me to live below my means.

That was good advice for a different era. The modern scenario has us gasping for air in an increasingly saturated world, especially when you take into consideration the recession that caused the business sector to plummet.

It’s a difficult prospect to accept. The reality is that you may not be as financially capable as you would want to be. But like with many things in life, it pays to swallow your pride every once in a while. And when it comes to making purchases, that can either mean that you simply give up the chase and forego something you would have wanted to have, or you might instead opt to borrow money in order to buy what you meant to buy.

This article places a heavy emphasis on the latter scenario. To that effect, there are many ways to borrow money. You have personal loans, title loans, and even loans made between friends and family, all of which have their own set of perks and drawbacks.

There’s a real danger in overestimating what you’re able to pay off. And while a loan may seem like quick relief, if you fail to manage it properly, you can quickly find yourself drowning in debt. So, how do you avoid such a damning situation?

Assess Your Paying Power

Never borrow more money than you can possibly repay. And if the old adage about counting chicks is true, then there can be no other scenario that it applies to so perfectly. You need to be honest with yourself about your ability to earn. You then assess the limits of your capabilities. You should also take into consideration the possibility that you might lose your source of income.

Keep The Term As Short As Possible

As a general rule, the longer the tenure of your payment term, the higher the interest rates will be. By paying sooner, you not only relieve yourself of the burden of having a higher interest rate (and you spend less overall), you have the advantage of planning for a short-term struggle. That means that things are going to be easier to predict, especially since you never know what might happen two to five years from the date of your loan.

Borrow For The Right Reasons

If you’re taking out a loan so you can splurge or invest, then don’t. Never use borrowed money to invest. Fixed deposits and bonds are more suitable for making an investment. Avoid falling for the “travel loan” trick. If you’re going to spend money on leisure trips, it should be your own money. Loans are best for building an asset, like, say, a house (if you read Rich Dad, Poor Dad, then, you definitely know that a car is NOT an asset).