We’ve all felt it before. When you see that certain something that you just have to have, but the sticker price is way north of what we typically carry about in our wallet or purse. For some of us, we could whip out the plastic and get it right away, but that means paying really high interest rates in most cases. Another option is a personal loan. But is it a good option?
The answer depends. There’s nothing wrong with borrowing to get something you want or need under the right circumstances. Borrowing excessively for things that you don’t genuinely need, on the other hand, can put you in a world of hurt.
So, What’s Excessive?
There’s no definitive amount that fits every person and every situation. But, basically, if paying back personal loans is significantly cramping your lifestyle, you might not want to take on any more unless you absolutely have to. Some experts will tell you that your total debt repayment (excluding your house payment) should not exceed 25% of your income. We think that’s a bit on the high side, but these are decisions everyone has to make for themselves.
Keep It Under Control
Before you make any non-emergency purchasing decision, it’s wise to take a day or two to think about it. That’s especially true if what you’re buying is expensive enough to justify taking a loan out to pay for it. Make sure you are going to be able to comfortably pay off the loan.
Work on Savings, if You Haven’t Already
One of the best things anyone can do, especially if they have personal loans that they are paying off, is to work on putting a percentage of their paycheck into savings every payday. Ideally, we should all have at least enough to pay all of our bills for two or three months or more if we should lose or job or some other tragedy should deprive us of income for a while.
Is It In Your Best Interest?
One of the things you need to really consider before taking out a loan is the interest you will be paying. At first glance, those relatively small numbers might not seem like a big deal, but if you take the time to figure out how much you’re actually going to pay for an item by the time the loan is paid off, it might cause you to do some rethinking, especially if your credit is shaky and your interest loan will be high. That’s not to say you shouldn’t take out a loan. It is to say that if your credit is poor, you should consider paying off your other loans first.
Photo via jimmyweee