Loans can be a great help in times of emergency. They can also help when setting up a business or furthering your studies. However, there are some instances when we shouldn’t take out loans. Getting into unnecessary debts can develop bad spending habits and eventually result in financial trouble. Here are five times when borrowing money might not be the best option.
When you’ve got a bad credit score
Many lenders won’t give money to you if you have a bad credit score. Some may be willing to give money but at the price of high interest rates. Your credit score is largely affect by your ability to pay creditors on time. There are lots of guides on how to fix bad credit ratings – these could be worth reading before taking out another loan, so that you can repair your score and reduce the interest you pay in the future. There are special credit-builder loans out there available from your bank – the only form of borrowing that may be worth trying out.
When you’re already struggling to pay bills
If you’re already having a hard time making bill payments each month, you don’t really want to be adding to the monthly financial stress by taking out a loan. The monthly debt payments may push you over your monthly budget and get you in financial trouble. Borrowing from a friend or family might be better in such a situation, when you may have the option to pay the loan back at a later date rather than in monthly instalments.
When you’re trying to pay off another loan
Using a loan to pay off another loan can quickly cause you to spiral into debt. There are some exceptions such as debt consolidation loans – if you’ve got lots of small debts, you might be able to take out a big loan to pay these all off so that you’ve only got one big debt. This might be easier to manage, however you should be wary of the added interest on top.
When you’re trying to fund a gambling habit
You should never gamble with borrowed money as a rule. This is often how gambling addicts get themselves into bad debt. Yes, you may win and earn money off your loan – but it’s too much of a risk to take.
When you’re trying to pay for a holiday
Loans shouldn’t be taken out to fund personal treats such as holidays. You may resent your holiday afterwards because of the debt payments, when a holiday should be something you’re able to look back on fondly. There are times when you may want to take out a loan towards part of a holiday. If you’ve already paid most of the holiday but can’t afford the last payment due to a costly family emergency, it’s sensible to borrow some money to pay for the rest of your holiday so that all the money you’ve spent on it so far doesn’t go to waste. This may also apply to a wedding or money for Christmas presents. As for personal treats like new clothes, drink money and cigarettes – these are generally never worth borrowing money for as they’re not necessities or planned events.