Like so many people, a big part of our family budget is making sure the loan repayments are made.
Loans are like that 90’s hit by Poison, Every Rose Has It’s Thorn: They look fantastic for getting what you need now instead of later, but you need to be aware of the pitfalls or you could get hurt.
The first question you ask yourself shouldn’t be how quick you can get the loan to buy something, but rather things like: Do you really need the thing your borrowing for right now? Could you save for it instead? Is there a cheaper ‘thing’ (secondhand) which would suit? Can we really afford the extra strain on our family budget?
Basically, is it worth it?
When I make my annual foray into the local primary schools to talk to the year sevens about finance, I always touch on this because although they won’t be considering loans for at least another six years, I think it’s important to plant some basic awareness of this into their malleable pre-teen minds before they harden up into something better described as marble.
Loans have their place in budgets of almost every family. After all, credit cards are a handy way to pay your bills and personal loans are ideal for things like upgrading your car. And if you know anyone who has bought a house without needing to borrow the money send them by my place because I want to shake their hand.
When I do my chat with the grade sevens I always talk about the differences between credit cards, personal loans and home loans, and the good and bad associated with each.
Like with credit cards, I explain how some people borrow money to buy dinner. Unless they pay that card off in full every month, they’re essentially paying that meal off for years. With interest!
The kids catch on pretty quick. Quicker than I did as a 20-something, when a $500 credit card kept me poor.
Then we move on to personal loans which are a great financial tool for families because they allow them to purchase bigger items such as furniture, renovations, major repairs or maintenance and even the aforementioned cars.
But they can also get people into trouble if not approached sensibly.
“Hand up anyone who thinks borrowing money to go on holidays is a good idea?” I ask the year seven kids.
The example I give here, because I’ve seen it over and over again, is when a couple are getting married and want to take a nice long honeymoon overseas. Having a debt to pay off may not be the best start to a couple’s financial life together. And if they feel they have to borrow for the holiday, maybe something a little less exotic and a lot more local would suffice.
Another reason you might consider a personal loan is to refinance any existing debt with crippling interest into one easy and manageable payment which actually has an end date in sight.
And why wouldn’t you? Not only do personal loan interest rates tend to be up to half those of credit cards, but credit card companies are quite happy for you to pay their minimum payment and then draw it out again (meaning the debt can continue until your estate deals with it) whereas a personal loan is for a set period of time and every payment you make gets you closer to having that payment back in your purse.
The important things to remember when looking at personal loans is to not rush in so you’ve a chance to check out that fine print, shop around for a financial institution with a good rate and terms, and only borrow what you know for certain you can absolutely afford to pay back.
It’s common sense really, but you’d be surprised how many people rush in without considering there’s no use buying the flashest new car if the repayments put you in a position where you can’t afford the fuel to run it.
After all, you want to leave yourself with enough brass in pocket so you and your family have a chance to stop and smell the roses occasionally.
Thanks to People’s Choice Credit Union, I’m giving away not one but THREE $200 Visa giftcards. All you need to do is ‘like’ their Facebook page (https://www.facebook.com/PeoplesChoiceCU ) and then write in the comments below a funny money story (like your funniest financial blunder). Answers will be judged on creativity and humour.
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