If you are already in deep debt, do not borrow. You cannot solve debt with even more debt. Trim your budget and cut your losses before your debt spirals out of control. But how does one know their debt is excessive? There’s a simple calculation known as the debt-to-income ratio, which compares monthly gross income to monthly debt payments. If yours is over 43 percent, then you need to start worrying. Also, you should consider this as an indicator that you need to avoid borrowing at all costs.
Do not get variable rate loans for student loans, car notes, mortgages, or anything else for that matter. The risks that are associated with these loans far outweigh whatever upfront benefits or small incentives you might consider attractive. Do you remember the subprime and house credit crisis that happened in 2007-2008? Part of it was caused by borrowers attracted to Adjustable Rate Mortgages (ARMs), which initially offered very low-interest rates but later increased by a significant margin, triggering defaults. It is advisable that you always find out how much interest you will be required to pay over the life of a loan, and that you have a good understanding of all your obligations when it comes to monthly payments. This is a lot easier to achieve with fixed-rate loans.
Never borrow money without carefully reading the fine print. Direct payday loans lenders are transparent in what you will owe. Repayment terms or interest rates are often less favorable than most people think. The options available when it comes to debt modification could be minimal or even nonexistent.
Some lenders will even place liens on some of your assets, such as property. If you do not read the fine print and understand it, these are some of the things you will miss and which will end up haunting you in the future. It’s, therefore, advised that you take your time to read through the agreement and understand it. Do not forget to ask questions. If you do not know much about consumer loans, consider contacting the CFPB or asking a professional such as an accountant or an attorney. (I once nearly had a lien placed on my property, which left me wishing that I’d taken my own advice about reading the fine print sooner.)
Do not borrow more than you can repay. While this tip sounds a bit obvious, it still gets a lot of people into trouble every year. Before borrowing any money, be absolutely sure that you will be able to pay the debt off in full. This means being certain that you have a source of income for ongoing loan repayment and that you can cut down on your budget to manage both loan repayment and settling other bills. This is why taking long-repayment terms loans such as mortgages is often a major undertaking and why seeking loans you can afford is advised.