How To Be A Savvy Borrower

Borrowing money is a serious matter. Any time you take on new credit (or debt) you are legally liable to repay the loan according to the terms of your contract. Whether you are buying a home or car, taking out a student loan, or just using a credit card to make purchases, each piece of new debt adds to your financial burden and increases the amount of time it will take to become debt-free.

However, at some point in everyone's life the need to borrow money will probably arise. The average American consumer now has nearly $15,500 in credit card debt, per household. In addition, many people also have mortgage payments, car loans, and other types of credit which they must repay each month. It's easy to see why so many individuals quickly become overwhelmed with debt.

The key to borrowing responsibly is to know your true financial situation and honestly determine whether you can handle more debt. Not all debt is bad. If you make timely payments and fully repay your loan, your credit score and credit rating can actually improve. Having a higher credit score generally means that you will get lower interest rates and better overall loan terms when you do apply for new credit. This can result in significant savings to you over the life of your loan.

Factors to Consider Before Taking on New Debt

Experts seem to agree that there really are two types of debt- good debt and bad debt. Good debt is generally considered something you buy which will increase in value, such as a house. Bad debt is when you use credit to purchase things which have no real value (just about everything you spend to maintain your consumer-driven lifestyle).

Before you decide to take on more debt (either good or bad) here are some questions you should ask yourself. If you are like most American consumers, you probably use credit to purchase nearly everything you buy! Many people get lured in by offers of "free interest for six months" or end up buying a car (or television, or furniture) that is much more expensive than what they actually need. Before jumping into more debt for "consumer items", ask yourself these tough questions:

Being a responsible borrower requires a high level of financial discipline and a strong commitment on your part to meet the obligations to which you have agreed. Meeting these financial responsibilities is an important step in successfully becoming debt-free and financially secure.

No one wants to be saddled with overwhelming debt. The stress and burden of always having to borrow money can be debilitating in so many ways- physically, mentally and emotionally. Don't let money control your actions. By consciously controlling your spending and saving wisely you can insure that you will reach your long-term goal of financial freedom. You just have to start.

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