Borrowing basics
Our presenter, Donna Sawyer, looks at the advantages and pitfalls of borrowing and how getting into debt is a lot easier than getting out of it. Your borrowing decision is not solely about what, why, and how much, timing can be as crucial a factor as well and as always don’t forget to read the fine print.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 25 Jul 14
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Our presenter, Donna Sawyer, looks at the advantages and pitfalls of borrowing and how getting into debt is a lot easier than getting out of it. Your borrowing decision is not solely about what, why, and how much, timing can be as crucial a factor as well and as always don’t forget to read the fine print.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Fees, charges, interest rates and fine-print conditions can make credit very expensive, especially if you borrow more than you can afford.
Before borrowing in any arrangement, you need to work out if you can afford to borrow. That sounds like the most basic question, but too many people ignore just how they are going to make repayments on their loan or credit card. Review and update your budget to work out your current income and spending, and how much you can afford in repayments.
Be clear on why you're borrowing the money. Is it for something you need, or something you want? Are you borrowing money to help someone else? Or do you need credit to pay electricity and other bills?
Be honest with yourself as to whether borrowing is your best option. There may be other ways to get what you want. For example, you could do it the old-fashioned way – you could save and buy the item outright.
If you’re thinking about borrowing, it’s a good time to check your credit health. A lot of people are surprised to find out that they have a black mark on their credit history, but it’s easy to forget about the odd bill, or fail to update a new address when you move house, and miss a bill in the post.
You can check your personal credit rating through organisations such as Veda Advantage. A free report can be sent to you within 10 days, or you can fast-track the application by paying an express processing fee of about $30.
Credit providers use your report to assess your capacity to repay a new loan, credit card, or mobile phone plan, or if you seek to increase your limit on an existing credit card. If there are any problems in your credit history, write down in detail how the default occurred – and be honest. It’s all you can do, and the potential lender will appreciate your honesty.
Lastly, put some thought into whether now is the right time to borrow? Think about any changes that might affect your income: How secure is your job, and your partner’s job? Are you planning to start a family or take time off for study? Do you have any health issues that may mean you'll earn less for a while? If you said 'yes' to any of these questions, you might be better off saving now and borrowing later.