We are often met with the idea that borrowing money is bad news. Watch the news today, and you’ll see scary reports about how dangerous borrowing can be and even how borrowing money caused the financial crisis and could cause another one. It’s enough to make anyone think twice before they take out a loan to buy a property, borrow for a holiday or even purchase a credit card. But the notion that borrowing is always bad news is a simplistic one that is completely incorrect. Borrowing can actually be highly beneficial in certain circumstances. What we need to think about is the danger of borrowing that’s out of control. This is the true cause of the financial crisis that shocked the world in 2008. It was people borrowing to live beyond their means, and that’s not what borrowing should be about.
However, this shouldn’t put you off borrowing completely. Used correctly, it can be a great tool that will benefit you financially and improve your quality of life. So, let’s look at why borrowing can actually be better than saving and how to do it the right way. We can start with the property market.
Even A Necromancer Can’t Bring Back Dead Money
Whenever you rent a property, you are dealing with what is commonly referred to as dead money. What do we mean by this? Basically, when you rent a property, you are paying for something without seeing any long-term benefits. Sure you get a place to live, but it’s not an investment. The money that you pay each month doesn’t stay with you. Instead, it goes out of your pockets never to be seen again. That’s a problem. Let’s say that you are renting a property and paying five hundred a month in rent. That means that you’re wasting six thousand a year in total of dead money.
It gets worse too because often there are issues with a rented property that make it more expensive. For instance, you might be tied to a particular energy provider. Some renters will not allow you to choose your own and this means that you won’t be able to shop around for the best deals which is one of the benefits of an open market. You can do this when you buy your own property.
That’s why many people feel it’s best to buy a home as soon as you can afford it. Unfortunately, unless your last name is Kardashian, you’re not going to have the money to buy a home outright, and that means that borrowing really is your only option. A home is an example of a purchase where borrowing money isn’t just smart, it’s vitally important.
To do that, of course, you have to get a good mortgage deal and wouldn’t you know that borrowing once again works in your favour here.
The Weird Ways A Credit Score Impacts Your Life
If you don’t know your credit score or haven’t checked it out, that could be a big benefit. Even just checking your credit score online can impact it, depending on the resource that you use. You should always check with the company first whether your score will change when you check it. Your credit score is basically a cheat sheet for lenders. It’s a history of your finances that shows how trustworthy you are as a borrower. Do you borrow and when you do, do you pay it back on time?
Your credit score needs to be at a healthy level to buy a home with a good mortgage rate. A good mortgage rate makes a property more affordable which means that you can buy sooner rather than later. As such with a strong credit score you might just be able to get your first home before you hit thirty. Don’t forget, owning property also gives you financial power and is a great investment, so if you can afford it, this will be beneficial.
It’s worth pointing out though that a credit score can impact more than just your ability to buy a home. It will impact any large loan or borrow that you want to make and that’s not all. Since anyone can check your credit score, it can impact your ability to rent a property, or even get a job. Put it this way – if you want to work in finances, you better make sure that your credit score is rosy. Insurance can even be higher depending on your credit score.
Now you know how important it is – let’s work out how to fix it. You can improve your credit rating by borrowing. You need to borrow and pay back on time without paying back too early. This will show evidence that you are excellent at dealing with money, paying it back to the lender without cutting off their chance to claim interest.
This is where things like credit cards and online loans come in. Buying on credit cards and paying back the money on time will help improve your credit score dramatically and don’t forget, a lot of cards come with rewards. You can get money off food and other purchases simply by using that credit. You can even get better exchange rates when you travel abroad. It all depends on the company that you choose so make sure that you shop around.
Now, some people do think that they can get the same benefit simply by avoiding borrowing altogether. Surely if you never borrow your credit score will still be healthy right? Actually, your score will probably be lower than someone that has spent their life borrowing paying back on time. Simply put, you won’t have the data to show that given the opportunity you could pay a loan back on time.
As already pointed out, that’s an issue. No matter how hard you try you won’t be able to avoid borrowing forever. Eventually, you will stumble upon a purchase that you can’t handle without a loan.
Of course, there are other benefits to borrowing rather than just improving your credit score.
Live For Today Not Tomorrow
You’ve heard living for today. The problem is, as you’ve probably found, you can’t actually afford this type of lifestyle. It’s all very well saying you’ll go on a holiday this year or travel to a new exciting location on your bucket list. But how are you going to afford it? If you have a high pay job you might manage it but what about if you’re on a low income? What if you’re in your twenties? This is when you want to travel when you’re enjoying the best years of your life? If only your bank account were also at it’s healthiest point?
Believe it or not, most of the people running travel blogs aren’t making enough to pay for their luxury trips. Nope, they either travel on a shoestring or borrow and pay the cost back little by little. By doing this, you can get the benefits of living today and pay it back tomorrow. You might worry about saving for the future. That can be hard if you’re constantly borrowing and hopefully paying it back on time. But you have to remember one important fact here. The future might not arrive…
Ultimately, you could get hit by a bus tomorrow. If you borrow today, at least you’ll be able to make all the moments you have on this earth before it happens count.
Getting Back On Track
There is one final benefit of borrowing that we think you should consider in case you have still ruled it out. Borrowing can actually help you get your finances back in order. We’ve already mentioned this briefly regarding credit scores. Improving your credit score will certainly make improving the health of your finances easier but that’s not the only way borrowing can bring big benefits.
Let’s say that you have borrowed money from the wrong source – it happens. Well, then you might be facing a massive level of interest and hidden fees. You’ll want to escape this loan as quickly as possible. The best way to do this is actually to borrow again. Find a loan to cancel out the previous one. By doing this, you can borrow from a reputable lender and get a better deal that is more affordable. It is the same basic principle behind remortgaging.
You can even get a zero interest credit card. Some companies offer you zero interest on your card for up to around three years if you use it to clear off a debt. You can then spend the years paying back the loan without worrying about interest for up to three years! This can help you avoid growing your debt rather than escaping it.
We hope you see now that borrowing isn’t always bad news for your finances. There are a lot of situations where borrowing can actually bring tremendous benefits so don’t rule it out and don’t deal in absolutes. Nothing is ever as black and white as one decision is right while the other is wrong. This is particularly true when thinking about your personal finances.