How Borrowing Money Each Month Can Quickly Ruin Your Finances
Having a credit card is as good as taking a loan every month. Plus, your supermarket and gas cards may also work on a monthly credit which are high interest. Every month you take a loan, spend it and at the end of the month you return the money with interest. Countries like ours, have their economies based on the system of credit card and there is a good reason for it. It allows individuals to carry around more money than they are earning and make purchases they couldn’t have before. The lenders are in the business of making monet from interest. However as financially secure it sounds, there is a high chance that taking a monthly loan is the best way to throw yourself into financial ruin.
You Are Spending Money You Don’t Have
No matter how you put it, you are spending money you don’t have and that carries plenty of risk. Sure, you can point out that once you get your salary at the end of the month, you will pay it back, but what if you miss out on the loan payment. Not only will the payment carry forward with an increased interest, but you may even be charged a fine. Interests and fines ensure that you always pay back more than you spend.
To stay financially secure, it’s never good to spend more income than you earn. Most take a loan which is more than their income and it is too tempting to spend the money, since you have it. For example, with your income you can just about afford a Sony Home theatre system, but with a loan you can purchase an awesome Bose home theatre system. A loan induces you to spend more than you usually do.
Risk to Your Credit Score
Taking a monthly loan, results in you paying a monthly instalment. Every loan you take goes on to your credit reports and affects your overall detb servicing ratio and also make your risky in the eys of the creditors. A credit score is highly important for getting loans in the future. Lenders make their lending decisions based on this score, waging how much risk you carry. When you take monthly loans, it’s not difficult to default on the payment since they demand monthly payments. Even a single default can make your credit report look bad and land you with a terrible credit score. This is in turn will make it difficult to get a loan in the future. The Banks can also increase the interest rate on the Low unsecured Lines of credit when they see that the customer is burrowing more money.
The worst way to plunge yourself into financial ruin is if you don’t make the payment and find the debt piling up, month after month as each monthly loan payment piles up. As you default on the payments, you will be charged a fine. Soon enough, the income you receive at the end of the month won’t be enough to cope up with the payment, bills and your daily financial needs. Before you know it, your house is on sale by the lenders and you are living on the streets (worst case scenario)The best way is to set cash aside in an Savings account while still using the Credit cards. That way the credit score is being rebuilt, you are using money which you have and the most important you are not getting into debt.