It’s always advisable to live within your budget, stay away from debt, etc.. However, there are some cases when it’s justifiable to take on debt. Sometimes it’s inevitable to take debt. When you have an emergency expense for instance (such as an unexpected medical or car repair bill), you may be forced to take a payday loan or any other type of short-term loan. It’s a bad idea to take up a loan if you don’t really need one. With that said, let’s get into more detail on the best as well as the worst ways of using a loan.
Best ways of using a loan
1. Starting a business:
It’s highly recommendable to take a loan and start a business. Business loans make the most sense because they are put into one of the most productive loan uses. Provided you prepare a solid business, it’s always a great idea to use your loan to start a business.
2. Debt consolidation:
You can also take a loan to help you manage your debt better. Managing debt can be stressing when you have many loans. Debt consolidation allows you to clear off multiple debts so that you remain with one manageable loan. If your loans have gotten out of hand, it’s a good idea to consolidate as long as you still have the capacity to service the resulting debt.
3. To build your credit score:
You can also take a loan to build your credit score. If you have a bad credit score that needs to be improved fast, taking a loan is a good idea. The benefits of having a good credit score are enormous. As long as you can repay your loan in time, there is nothing wrong with building your credit score by taking loans and repaying them in time. This tip works perfectly with credit card loans/debt.
4. To cater for emergency expenses:
As mentioned above, you can take a loan to cater for emergency expenses. Medical bills, car repair bills, roof repair bills among other kinds of bills may arise when you don’t have money. In such cases, you can take a payday loan among other types of short term loans to cater for those emergencies.
Worst ways of using a loan
Let’s turn to what you shouldn’t do with loan money. Ideally, you shouldn’t take in debt to spend on unnecessary expenses. Although the definition of ”unnecessary” expenses can vary from one person to another, here’s what you need to know.
1. Never take a loan for gambling:
Gambling is very risky. The odds are usually against you. There is nothing wrong with gambling with your own money if you really want to gamble. However, it is not advisable to get into debt because of gambling. In fact, you should avoid taking loans to engage in any activities whose outcome can’t be controlled.
2. Funding luxuries:
You should also avoid loans if you are taking them to fund luxuries i.e. buy the latest furniture, electronics, go for a holiday, buy a second home, buy new clothes/shoes. Most people get into debt because of taking loans to enjoy lifestyles they can’t afford. To avoid this mistake, fund luxuries using your own money. You can take a loan if you already have the money to fund luxuries. For instance, you may be waiting to get paid. Unless you are in such a scenario, avoid debt by all means. If you can’t afford something at any given movement, save up and get it later. You should, however, consider putting your money into better use i.e. funding income generating ventures such as a business.
3. Paying everyday bills:
It’s also a bad idea to get into debt every month to pay rent, energy bills, grocery bills, etc. You can take a payday loan once in a while to sort out expenses when you have some financial difficulties. However, it’s not a good idea to pay for everyday bills with debt. If you find yourself doing this, it’s time to adjust your lifestyle to match your income. It is possible to avoid short-term loans by living within your means and building a savings account.