Debt

Debt

How to Pick the Right Debt

There are lots of different types of debt and if we do decide that we want to borrow money, then we will need to choose between them. It is not always easy to know what the right sort of loan might be, especially if we have not had a loan before or do not know much about them. It can be a good idea to think about how we might go about choosing.

Understand about different loans

It is a good idea to start by having a really good understanding of the different loans that are available. There are lots of loans on the market these days and it can be a good idea to have a good idea of what you have to choose from. You will need to think about things such as overdrafts, credit cards, personal loans, mortgages, payday loans, guarantor loans, instalment loans, and many more! It is a good idea to see if you can find a way to learn about all of them and then you will be able to know what they are all about and what sorts of features they have. Different loans suit different needs and so it is a good idea to think about what you need and then match it up.

Consider What you Need

So thinking about what you need is really important. You will need to consider things like how much you need to borrow and how long for as well as what you want from the lender. It is wise to think about things like how much you need to borrow, how long you want to borrow it for, what expectations you have of the lender and things like that. Consider loans that you have had before and what they were like and what you would like now compared to what you did then. Also, think about any dealing you have had financially and how that has impacted your thoughts with regards to borrowing and lenders. If you are still not very sure, perhaps because you have not borrowed before then chat to people about it or done some online research. Talk to people about what is important to them in a good loan and this could help you to consider whether those things would be good for you. Also talk to them about your reasons for getting a loan to see whether they can make any recommendations with regards to what type of loan might suit your needs the best.

Check Costs and Repayments

It is really important to find out more about the cost of loans. They all cost money, but you will find that some will be more costly than others. Therefore, it is a good idea to do a bit of research into whether there are certain types that are significantly more expensive and perhaps try to find out why. It is good to think in terms of value for money as you want to make sure that you are getting something good for what you are paying. Sometimes, we are prepared to pay a lot more for things because we feel that they are much better and so this is something which is worth bearing in mind. It is also worth checking details of the repayments. You want to make sure that you will be able to manage the repayments. It is important that you do this because if you do not, you will have extra charges to pay and this will not be ideal. You want to ideally make the payments on time and pay the minimum in interest and charges that you can.

Debt

Reasons Why Paying Off Debt Might not Always be Worthwhile

There are many people that will say that you should always repay your debt as soon as possible and that it will be better for you if you do. However, there are some circumstances when it will not actually be better to do this. It is worth being aware of these, so that you know when you should and when you should not be repaying your debt early.

When There is a Huge Early Redemption Fee

With some lenders, you will get penalised for repaying the loan early. This is for two possible reasons. They may have costs associated with you repaying early due to administering it and have to charge you for that and they may have a penalty for doing it to cover the loss in interest that they will get as a result. Some lenders have these and some do not and it varies between types of loans too. There will not be on for an overdraft or credit card but there could be one for a mortgage. It is wise to find out whether your lenders charge them so that you can find out how much they are. You could find that they are quite a significant amount of money. If it is high, then you will need to calculate whether it is worth repaying early or whether it will be better for you to just keep on with the agreed repayments. You will have to add up how much interest you will pay for the remainder of the loan in order to do this.

When You Can get Better Interest on the Money Elsewhere

There is a possibility, that if you do not repay your loan early, but save the money in an account, you could get a better return on it. This can be quite rare but if you can find a loan with very low interest and a savings account with very high interest then it could be best to save the money instead. Take a look at the rates and see what you can find. You may find that you will need to tie your savings up or put it in a notice account to get really good rates of interest but it is worth looking to see what is available.

When You Will Suffer

If you will have to go without basics to be able to repay your debt then perhaps it might be sensible to not do it. Think about everything that you have to buy and the costs of those things and whether you can really afford to repay extra. It might put a big strain on you to be able to stretch your money like this. Especially if you decide you want it paid off quickly and therefore have to really cut down what you are spending elsewhere. Consider what you and your family or household need as well and think about whether it is going to work for you to do everything that you can to repay the debt quickly.

Usually paying off a debt early is a good thing because you will save money and be free of the burden of the loan. However, it is good to think about whether it really is the right personal decision for you. There are reasons why you might find that it will not work out for you and you need to be sure that it is the right decision both financially and personally. So consider the above factors in light of the advantages so that you can decide what you think will be the right solution for you.

Debt

How to Choose the Right Debt

There are lots of loans that we can choose from and it can sometimes be difficult to know which ones will be the best. There are things that you should think about, with regards to what you are looking for in the loan, which should help you to be able to find the right type of loan.

How Much you Want to Borrow

To start with think about how much you want to borrow. You should try to come up with a figure which exactly covers the item you are intending to buy with the loan. This is because if you borrow more than you need, then you will end up paying out a lot more for the loan in interest than you need to. It might also be more difficult to manage the repayments if they are larger. Therefore, it can be a good idea to think about whether you are borrowing the right amount.

What you are Buying

There are certain loans which are more suitable for specific items. For example, you would only use a mortgage to buy a home. There are also more general loans as well. You will find that you might be restricted at times with what you are allowed to use a loan for. Also, you might find that certain loans will just not suit your need so think about whether you feel this applies to whatever it is that you are buying.

What you Can Afford to Repay

It is a good idea to also find out how much you will be expected to repay. Often loans will have a monthly repayment and you will need to check how much they are because you will want to be sure that you can afford those repayments. If you miss a repayment you will have to pay an extra charge and you do not want to pay more than necessary. Therefore, make sure that you know how much the repayments are going to be. Also, think about whether you will be able to afford that repayment by looking carefully at your bank statements to see whether you normally have enough to cover it. It is also wise to consider what might happen if the interest rate goes up. If you take on a loan with variable interest, the lender will be able to put up the interest rate when they wish to. This could mean that you will have to repay more each month than you originally planned for and so you will need to think about whether this is something that you can afford to do.

How Long you Want the Loan to Last

It is also worth thinking about the length of the loan. Some will last longer than others and you will need to think about how long you want to be repaying it for. It may not matter too much, but it could be that you have something coming up in the future that you want it paid off before it takes place.

How much You are Prepared to Pay

It is also good to think about how much you are prepared to pay for the loan. Find out how much the total cost might be and decide whether you feel that this is an amount of money that you are prepared to pay in order to borrow the money, bearing in mind that that will go up if you miss any repayments and may go up anyway if it is a variable rate and the lender decided to put up the rate. Decide if you feel that the loan will give you good value for money.