Although loans do have their place and some people cannot manage to do things like go to university or buy a home without borrowing money, there are many loans which are unnecessary. When people borrow money for a holiday, to make ends meet, to pay for home repairs or for a wedding, they will end up paying a lot more due to the costs of the loan. There are ways that you can avoid having expensive and unnecessary loans.
To start with it is worth having a good idea of your current financial situation. Write down the money you have coming in and what you spend as well. It is wise to separate the spending into essential spending such as regular bills, rent or mortgage, tax, insurance, loan repayments, travel and food from the luxuries such as holidays, gifts, clothing, homewares etc. You will then know exactly where your money is coming from and what it is being spent on, which is very useful.
Often when we borrow money it is because we haven’t planned well for our future or that we want things which we cannot afford and do not want to wait for. If you keep an eye on your financial situation you will know where you stand financially which will be very helpful in planning. It is also wise to think about whether you really need everything that you are buying, including those items that you are borrowing money for. If you budget well, you could save up money each month and use that to buy the items that you need. It is always better to use savings rather than borrowing, if you have them because it is much cheaper. Loans are very expensive and you will end up paying a lot more for the items that you are buying, especially if you take a long time paying back the loan.
Sometimes it can be tempting to buy things because other people have them. It is natural to feel a bit envious and wish that you had those items as well. However, being like this will mean that you are always buying new things and you may not even be that happy with them once you have them. It can be worth selling some things that you have bought as this will not only generate some money, but it will also show you how little they are worth compared to what you paid for them. Hopefully this will make you think twice before buying things like this in the future.
It can be very effective to keep a note of what you would like to achieve financially. You may wish to pay off your debts, save up for a holiday, have a wealthy retirement or pay for your children to go to university. Whatever it is, then by keeping a note of it and reminding yourself regularly, particularly when you are tempted to spend money on things that you do not need and may even regret buying, you should find that you will be less likely to spend.
If there are particular places where you get tempted to spend too much, perhaps a particular shop or home, then try to avoid them. If it is a TV program that makes you want to go on holiday or ake changes to your home or wardrobe then do not watch it. If you cannot see what you are missing out on, then you will be less tempted to spend the money.
If you do still want to be able to buy a lot of things then it is wise to try to increase your income rather than getting a loan. See whether you can do some overtime, a second job, ask for a pay rise or find a better paid job. See if there are other ways to make extra money, such as selling things, starting a business, freelancing or renting out a room in your home. If you have more money coming in then you should not be so likely to need to borrow.
It is always worth calculating the cost of borrowing if you are tempted to get a loan. By adding up how much the loan will cost you in total or how much interest you will pay on a credit card each month. It should help you to realise why borrowing is not usually a good idea. You will be paying out a lot more money than the cost of the items and it may put you off buying them because they will be so expensive.