Get Credit Wise! Change Your Financial Future

Sep 18, 2015

Credit Cuts Both Ways

Credit is a double-edged sword, as it can be a valuable tool for building up your personal wealth, then again, it can easily sink you into financial ruin, if abused to fund an unsustainable lifestyle. As such, deciding to apply for credit or a loan is a decision not to be taken lightly.

It is important to determine why you need the loan and whether or not you could use it to improve your financial prospects. Ask yourself the question: how can I put credit to good use?

Good Debt

Using credit to uplift your financial position is what is referred to as accruing good debt i.e. taking out a business loan, home loan or student loan.

Bad Debt

Conversely, when you use credit to buy day-to-day living expenses, i.e. groceries, transport etc. you are racking up bad debt. The reason being, your expenses increase overall after taking out a loan, as you will then have to pay interest on it.

Bear in mind, credit is borrowed money which you are spending and are compelled to pay back with interest. Whether you spend it on furniture, clothing or groceries, these items are actually costing you more than they would have, had you bought with your income or savings.

Consider whether or not merchandise is worth paying more for than its actual worth, before tossing your hard-earned money away in one swipe.

Secured Loans

Once you have established whether or not taking out a loan will add value to your life, there are a variety of loans at your disposal. Taking out a secured loan will mean signing over your asset/s, i.e. home or car, as surety or as a guarantee that you’ll repay the loan.

In this way, if you fail to pay the money back, the creditor can legally repossess your assets. Secured loans have a longer repayment term, so you will pay lower interest rates on this type of loan.

Unsecured Loans

You don’t have to sign over any assets to take out unsecured loans, as they are paid back over a much shorter term. Some examples of this kind of loan are overdrafts, credit cards, revolving loans, personal loans, payday loans, etc.

Lenders will run a credit check on you or look into your financial history before approving you for unsecured loans. The loan amount you can take out will be lower than the amount you would get for a secured loan, while the interest rate will be higher.

This is due to the fact that unsecured loans are riskier for the lender, as you don’t attach your assets to these, so they can’t be sure if you will pay them back. Naturally, you will be charged interest on all loans, whether it be unsecured or secured.

Credit Wisdom

Always make a point of knowing what the interest rate and total amount to be repaid is, and how much time you have to repay the loan. You can change your financial future for the better by expanding your credit knowledge to ensure you use it wisely.


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