How Do You Know When To Borrow Money?

There are many reasons why people borrow money. Some of the most common reasons are paying for unexpected expenses, home renovations, and purchasing a car. Whatever your reason for borrowing money, you should still always ask yourself “Is borrowing money the right thing for me to do?” Remember not all borrowing options are open to all who need to borrow. People with a good credit history will generally have more options open to them. Someone with poor credit might look at but make sure you educate yourself fully before making any decisions.

Where Is My Money Going?

The first thing you should do is take a look at your budget and see where your money is going. I know it’s a boring task but gather together all your paperwork and sit down and spend a few hours making a proper budget. Look at how much money is coming in – that includes salary, side hustle money, benefits, share dividends, etc.

Now go through every single one of your outgoings (and I mean every single one!!). We often don’t realise we spend as much money as we do. A £3 coffee isn’t going to break the bank but if you have one every weekday, 52 weeks a year, that amounts to £780 a year!!! Small spends add up. It can be a real wakeup call seeing the figures written down in black and white.

Do I Really Need To Borrow?

The next thing you need to establish is if you really need to borrow money. Can you cut back on your monthly spending to free up the money you need? For example, imagine you only need access to £1000. You’re spending £300 on a gym membership you never use and you are also spending hundreds of pounds on takeaways a month. It doesn’t make much sense to borrow and pay interest on top, if there are some simple steps you can take to save hundreds of pounds a month.

Now there are plenty of situations where the only option is to borrow. Many of us have addressed our budget and there simply isn’t anywhere we can cut back on. While, in an ideal world we’d be able to save for the high cost items we need/want; it’s just not practical in all situations. Do you put off going to university until you save the full amount to cover fees and living expenses? If you tried to save the full amount to buy a house before stepping on the housing ladder, then it would forever remain no more than an elusive dream.

Is It WORTH Borrowing For?

Now, listen carefully, this is probably the most important question – Is the thing I want WORTH borrowing money for? The answer will vary for all of us depending on the situation we find ourselves in.

Question – Is borrowing money for the airfare worthwhile? If you want to borrow money for your third holiday of the year, then the answer is probably no it’s not worth it. But if the airfare is to visit an elderly relative of attend your best friend’s wedding, then the answer could very well be yes!

Borrowing Is Right For Me. What Should I Do?

Great, you’ve established that borrowing money is the right option for you, now what do you do?

There are many options open to you – friends/family, loans, credit cards, payday loans, etc. Utilise lots of different resources and really educate yourself on the best option for you.

The information in this article is not professional advice. I do not have a background in finance. I’m simply highlighting some points to consider before embarking on taking on debt. If debt is effecting your life please seek help.