How to borrow money responsibly

It’s Debt Month at Metro.co.uk and each day of November, we’ve been bringing you everything you need to know to keep your finances in check.

Lots of our advice has been about paying back debt and some might say that the best thing would be not to get into it in the first place, but realistically, sometimes you do have to borrow money.

If you have to take out a loan or a credit card, there are some things you can do to stop it from becoming unmanageable and to ensure that you can pay it off as quickly as possible.

Plan your borrowing

Don’t ever borrow money on the spur of the moment. If you are in a situation where you really need money that you simply don’t have at that point in time, think about the best way to handle it.

If you are buying something like a car or furniture on a payment plan, don’t be persuaded to just take the deal. Would buying second hand be a better option for you?

Similarly, you might be tempted to use a buy now, pay later option on a whim when you are shopping online – but can you actually afford to pay it back later?

If you use an overdraft to borrow some money, it is best to speak to your bank as arranged overdraft fees are usually much cheaper.

Think about whether you actually really need to borrow money and if you do, think about it carefully before you commit to anything.

Work out if you can really afford it

If you are borrowing money, you need to factor the repayments into your budget. Look at how much you can afford to pay back and how long it will take. Is that realistic? If not, you might need to rethink.

A long term loan might seem appealing because the monthly repayments are low but you end up paying much more overall.

Use a loan calculator, like this one from MoneySavingExpert, to work out what is really realistic for your circumstances.

The Citizens Advice Bureau (CAB) recommends paying at least 10% of your balance every month on credit cards. They add: ‘If you only pay the minimum amount, you’ll be paying forever.’

At the same time, don’t fool yourself into thinking you can pay back much more every month. Aiming too high could mean you start to fall behind.

Some credit cards are available with interest-free deals, but these only last a certain amount of time.

If you don’t manage to do it within that period, the interest is higher and it starts to build up. Make sure you plan how you will do it within this timeframe if you choose one of these cards. If you don’t think you can, choose an card with a lower interest rate over a longer time period.

Shop around

If you need to borrow money, you should research what is on offer and get advice.

There are lots of types of borrowing and you should understand each one before you make a decision about what you need.

If you are applying for a credit card, there are lots of options available from many different banks and providers.

Making lots of applications can seriously impact your credit rating so you can use the MoneySavingExpert eligibility checker before you apply to see what you are likely to get.

Each one will have different offers and some come with certain perks so read through each one to find what suits for your circumstances.

The CAB says: ‘You may think it will take too much time if you need a loan quickly but you’ll be paying the price for years to come if you don’t.’

Make sure you understand what you are doing

There are different types of loans – secured and unsecured. Secured loans are attached to an asset like your house or a car, so if you miss those payments, you risk losing those assets.

Unsecured loans, like a credit card, meaning you make payments and missing these could mean further fees or court proceedings.

As part of your research, read the terms and conditions and make sure you fully understand what will happen if something goes wrong and you can’t make the payments.

Struggling to get credit? Avoid payday loans and loan sharks

If your credit rating is low but you need to borrow money, you might find that most options are not available to you.

Think about if borrowing the money could wait and if you could instead spend some time improving your credit score, before borrowing money in a way that you can pay back.

Avoid things like payday loans and loan sharks with high-interest rates.

Talk to the CAB about where you can get help with free advice. There might be a Credit Union in your area and you may be able to borrow from the Social Fund.

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