Money Tips

There are many reasons people borrow money ranging from a kid borrowing from a friend to buy a candy bar to one government borrowing money from another government to dig more oil wells, create roads etc.

When money is borrowed, there is almost always a cost. If you don’t payback the mortgage company or your car loan, you will lose these assets and often any money you have initially contributed. If you borrow money from your friends, that can cost you a friendship.

For many people, borrowing money has become a way of life. Therein lays the seeds to growing a heavy debt load and serious trouble. What follows are tips that you can use to eliminate or lessen that possibility.

1. Don’t borrow money for commodity items. Jewelry, household furniture, new clothes come into this category. If you want these items, save for them and pay cash.
2. Don’t borrow money for recreational activities. If you want to take that expensive cruise, save for it. If you want that SUV, save for it, and then make sure your income is such that you can afford to own it. For instance, if you want a boat, save for the initial purchase, and make sure your income is sufficient to maintain it, moor it, etc.
3. Don’t borrow more from your credit card than you can pay off at the end of the month. If you use your card to purchase a piece of jewelry, go to the movies, or pay for recreational travel, make sure you pay that in full at the end of the month. Credit cards have a hidden trap in that they allow you to make payments on your purchases, but that’s a problem when each month you chunk on ever-increasing purchases and you find yourself joining the millions of people with credit card debt problems. Credit card companies love to loan you money because the interest they charge digs deep into your pocket in order to create wealth for them.
4. Don’t borrow from friends and family unless absolutely necessary. If you have forgotten your wallet and borrow a few bucks for lunch, pay that debt back as soon as you can (like when you bring your wallet to work/school the next day). If you borrow a larger sum of money (yes even if it’s from your mom), provide an IOU with terms of payment and a fair interest rate. Otherwise, you’re just a user loser.
5. Don’t fall for sale hype. Before you buy anything on time, like a new car, walk away from that all too persuasive salesman/woman, go home, think about the pros and cons of your decision, and then take whatever action is best for you. Remember salespeople are trained to get you to buy and many of them are darned good at it. If you don’t do this, you could well find yourself locked into an unaffordable contract. If you find yourself with a serious brain block in looking realistically at your purchase because you want it sooooo bad, ask a friend or family member what they think would be the disadvantages to the purchase.
6. Always shop around when you’re thinking of buying a new home or car. This can save you a ton of money and a lower interest rate (yes, you need to shop for a mortgage company when purchasing a home).
7. Always go into a contract with your eyes wide open. Read the fine print. I know it’s boring and you need a microscope to see it, but read it anyway. If it’s written in legalese, get an interpreter.
8. Always make your payments on time (even to your mom). Credit card companies, mortgage companies, and banks will make a killing in late fees if you don’t. Be sure and make sure your payment arrives at your creditor’s mailing address on or before the date the payment is due. Some lenders have a little trick they play. They will send your statement so that it arrives on a date that makes it impossible for you to pay them on time. Squeak loudly if you have a lender that does this (there is one credit card company that’s notorious for this practice).
9. Always get a mortgage with a fixed rate of interest unless you are 100% sure you will sell the house prior to possible rate increases. I have seen many foreclosures because an increase in interest rates suddenly made the home unaffordable to the purchaser. ARMs (adjustable rate mortgages) are marvelous in qualifying a buyer to buy a home, but they can be a nightmare for that borrower down the road when they can no longer afford the payments.
10. Never buy based on the job you’re going to have or the money you expect to receive. Buy when you actually get the job or the money is in your bank. You should also never write a check in anticipation of money to arrive in your account before the check clears. If you do, you can end up paying feed charged by your bank and the creditor.