Article provided by www.sorted.org.nz

Getting in is easy. Getting out is harder.

Going into debt is a big decision. When you have debt, your life options start to become far more limited.

Debt comes in many forms - credit cards, HP, mortgages, personal loans... There's no shortage of people out there wanting to lend you money.

Just because you earn enough to meet a loan repayment doesn't mean a loan is your best option. And don't expect the organisation lending you the money to tell you if you're making the right decision. They want you to take out the loan because they make money from the interest you pay.

Don't be sucked in by easy credit
Make an informed decision - don't let easy credit lead you to spend more than if you were spending from your savings. If you had to take the money out of your savings account to pay for this, would you?

Remember - getting into debt is easy. Getting out of it is much harder.

Do you really need to borrow?

At sorted, we have some simple rules about borrowing and saving:

Ask yourself - do I really need the item or service I want to buy, and can I afford it?
Borrow to invest in assets you need.
Save to pay for expenses or non-essentials.
Borrow to invest in an asset. Save to pay expenses.

Borrow to buy an asset

Assets are good. Once you've paid for them, you have something of value that you could sell if you had to.

There are two kinds of assets - value builders and value losers.

Save to pay expenses

Expenses are things that leave you with nothing after you've paid for them. Living costs, nights out, and holidays are all expenses. Pay for expenses from your income or short-term savings.

It can be painless to pay for a meal in a restaurant on your credit card. But if you take a few months to pay off the credit card, it can be very painful when you realise that interest is making that meal out (which you barely remember by now) more expensive every day the debt isn't paid off.

Remember, saving money to buy things makes the overall cost of those things lower.

For more information, visit www.sorted.org.nz

Be first to comment this article

Only registered users can write comments.

Please login or register.