Benefits of Borrowing
Borrowing responsibly allows you to manage your money effectively and can help you achieve important financial goals that might not be possible without access to credit. For example, using a credit card, you can purchase major items you need when they're on sale. If you pay the bill either in full when the payment is due or as quickly as you can afford, you keep finance charges to a minimum.
Using short-term credit successfully can help you gain access to longer-term credit, which is important too. Using a mortgage loan, you can buy a home, spreading the payments out over an extended period to make the purchase affordable. Other long-term loans make it possible to buy a car or pay for a college education that might have been out of reach otherwise.
By planning your borrowing carefully, you'll find you can afford more of the things that are important to you while you protect yourself against owing more than you can easily afford to repay. And, as you make your payments in full and on time, you'll build a stronger credit history. If you've ever been turned down for a loan you needed or had to pay a higher interest rate than you expected, you are already aware of how important maintaining an excellent credit record can be.
Financial fitness is as important as physical fitness.
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The loans that you're reading about in What You Should Know About... Borrowing Basics are those typically available from mainstream financial institutions. Other loans people sometimes consider include refund anticipation loans (RALs), auto title loans, payday loans, and loans offered through check-cashing offices. Before taking one of these loans, be sure you understand all fees and costs associated with the loan you're considering and explore all of the alternatives that may be available to meeting your borrowing needs.
