The smart way to borrow money – NewsGram
By – Sana Faisal
Borrowing money is often considered a foolhardy decision that can lead to financial hardship, but the truth is, not all debt is bad. In many ways, if used strategically, borrowing money can actually lay the foundation for financial freedom, but the key here is to be strategic. There is a right and a wrong way to borrow money, and many people end up in debt for all the wrong reasons. If you want to borrow money, do it smart, and use debt to help you take it to the next level, there are a few things you need to do.
Here’s how to use debt the smart way:
Use debt to build your credit rating
In order to qualify for home and auto loans, you must first prove that you are a good borrower. This is where your credit rating comes in. Over time, if you show that you can borrow money and repay it reliably, you increase the likelihood of qualifying for a larger amount and getting a lower interest rate. To do this, you will need to strategically create smaller credit accounts. You can start with credit from a stationery retailer, buy a few items from that account, and then pay the money back. From there, you can access gas station accounts and even clothing accounts. What you are trying to achieve is a good track record so that a lender can trust you to repay the money you borrow. This is how you can finance your biggest projects.
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Buy real estate
The smartest way to use debt to your advantage is to buy real estate. It is very difficult to buy a house without the help of the bank, which is why most people get home loans. It doesn’t just have to be for a house you live in, it can also be for investment property. Owning a home opens many other doors financially. For starters, you have your own home, and that feels good. It can also help you lower your living expenses, but more importantly, it gives you an asset that you can use to further improve your financial situation. Once you have a home loan and put some equity in it, you can actually borrow that money and apply it to other financial strategies. How can you determine how much you would qualify for based on the equity in your home? One way to find out is to use an online calculator. You can find a great one at https://reverse.mortgage/calculator.
Don’t abuse your credit card
A credit card can be a great resource to tap into when you have a financial emergency, but it should never be treated as a stream of income. If you have a credit card, you are going to have to be extremely responsible with it. If left unchecked, a credit card can become stressful and strain your finances. One of the biggest mistakes people make when they have credit cards is paying only the minimum monthly payment. The problem is, if the minimum payment is only a small fraction of the total money you owe, you will never be able to reduce your debt and you will be trapped in a vicious cycle. If you have money on your credit card, pay off as much as possible and try to avoid maximizing it. That way it never gets out of hand and you don’t consume more of the money you have.
If left unchecked, a credit card can be stressful and strain your financesUnsplash
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Set up a business entity
If you are a real estate investor, do not get loans for your projects on your own behalf. One of the smartest things you can do is legitimately create a business entity and then perform all of your financial and investing transactions through it. This way, if things go wrong in a business venture, your personal credit rating is protected and the business entity absorbs the loss. Many investors have found themselves in a situation where they cannot even trade on their own behalf, and they all advise new investors to avoid this by protecting themselves from the start.
Borrowing money isn’t always a bad thing, sometimes it is the best financial decision you can make. If you understand how to use debt strategically, there is a lot more you can do for yourself. Instead of using loans and credit cards to fund a lavish lifestyle, you can be more in control and use them to fund businesses and improve your life for the long haul.