While no one likes to be in so much debt that they struggle to pay it back each month, we live in a debt-friendly society and, as a result, there are ways of making a loan or credit cards work for you. Financially savvy people know this and for years have been making loans and credit work in their favor, so while it is admirable to live without either, it might actually be better for your finances to take out a loan or credit.
It might sound strange, but those who never take out any sort of loan usually have just as bad a rating as those who are thousands of dollars in debt that they can’t pay back. The reason for this is simple – if you’ve never taken out a loan or credit card, banks and financial institutions have no idea how good you are at paying the money back. Banks want to lend people money, but they only want to do it to people who they know will be able to pay it back, so by taking out a small payday loan or credit card with a small maximum amount and ensuring you pay it back in full will give you top credit ratings scores, which is great when you need to borrow larger sums to buy a house or when setting up a business for example.
What’s the reason for loan?
Talking of houses and businesses, another way to make loans work for you is to decide what your return on investment will be with it. This doesn’t have to be financial, for example if you’re taking out a loan to pay for a vacation to somewhere you’ve always dreamed of going, then the return on investment in terms of memories is high; but if it’s just your annual vacation perhaps you could skip it this year and start saving for next year’s instead. Return on investment, however, is normally measured in financial terms and if you’re taking out a mortgage to buy a home it usually provides a good financial reward, just ensure that you’re not paying above the market price for the house.
How to make loans and credit work for you
While it is never a good idea to get into more debt to pay off existing debt, however if you’re already in debt with credit cards and paying high interest rates, consider taking out another credit card with 0% interest and transferring over your balance. This will help you get your balance down quicker, plus if you’re able to budget for it you might be able to clear the amount before the 0% interest rate ends.
Another way many people make their credit cards work effectively is by using a card that offers them rewards every time they use it that way whenever they buy anything they know they are getting more than just their purchase. The key thing to remember if you’re planning to do this is to ensure that you are able to pay off the full amount each month and you have the discipline to not go over more than you can afford to repay.