Have you ever thought about applying for a loan? Is it worth taking loans from banks or are they paving the way for you to get into debt? The verdict on this dilemma is clear and I will share it with you in this article. The most sound names in the Romanian financial blogosphere confirm the conclusion.
You live in the century of speed and you’re used to everything moving fast. Do you want something that goes beyond your current budget? A credit can bring you the purchasing power of the future and any dream comes to fruition today, you no longer have to wait for the salary increase or the lotto to win.
A very well known and often heard phrase in all the commercials for credits that you can hear daily either on radio, tv or read on the leaflet that was offered to you on the way home. As beautiful as it sounds, are they really a solution? Or am I an illusion? I invited the most well-known financial bloggers in Romania to discuss this topic which I will further explore.
The most common loans are those offered by banks
Credit, as a product itself, cannot be considered good or bad. The way the customer uses this banking product will make a difference. You need to be aware of the purpose for which you are taking it. There are situations when a loan is an excellent option and it is a great solution, but there are also situations where lending should be avoided.
For example, a person who needs a loan that is used to purchase goods that are not urgent and exceed the available budget (such as vacations, a new phone, etc.) can be a very unwise and irrational decision. A loan for such a good or servicer does nothing but create debt in the future, plus interest.
“If you really want that larger diagonal TV, that exotic vacation or that newly-released phone, it’s best to raise money and buy all this money down. On the other hand, if a medical situation occurs and the person does not have the necessary amount, it seems a good idea to use a personal needs loan. In this case, there is an urgent and immediate need, which is a well-founded goal. The person will only pay interest for the period he/she has used the credit and I suggest that the refund be made as soon as possible to reduce the cost. ”
Consumer loans are not a silly choice in all cases, but it has been proven that most people choose them without a proper purpose or do not realize how much their total cost is compared to the income they have.
“If the debts are made to cover your basic needs and personal desires, then you can consider them less good because they solve your challenges for the moment or you enjoy your soul, but come to the package with the obligation to repay a principal, an interest and sometimes they come and with a small dose of stress. In my opinion, bad debt is a debt that does not generate cash flow, assumes a high total cost, satisfies only a surface need and moves you away from achieving your financial goals. ”
The most risky type of credit – it should be avoided
What credit should be avoided?
“The credit you don’t need. I have noticed many friends who apply for loans for everything: electric, home appliances, cars and so on. If you can’t afford to buy a used car with cash, then I don’t think you need it. I am a follower of savings and subsequently of acquisitions, and that does not imply lending.
“Most of the time the person needs loans are taken for impulsive consumption, such as very expensive or vacant gadgets that customers do not allow and which they create debt in the future.”
“Some people see these loans as a great miracle, or as if they were making money for free, not being aware of what lies ahead. Often they persuade their employers to fictionally increase their incomes to fit higher incomes. There are also people who, besides the income from the workplace, also have other sources of sporadic income. When they are good, they do not realize that their good may not last forever.
Then the mistake is that, from the beginning, they take a greater credit than they allow and they wake up buried in debt over a few months. There are other cases in which people do not set aside money and do not have an emergency fund, but they buy various things through a consumer loan because they allow them to pay the respective rate without a problem. If a medical situation, an accident or job loss occurs, from there everything becomes like a domino game: the rate is not paid for one month, two, three and this results in a backlog of credit repayment from which he will not be able to leave. “
It may sound too obvious, but unfortunately, there are people who are in a hurry to take a loan and pay no attention to the details of the contract. The credit advertisement offers only its benefits and benefits, but it is essential to inform yourself about ALL the fees, commissions and obligations that come with the loan and carefully consider whether they fit in the personal budget.
Thus, the credit of personal needs becomes the riskiest credit when it reaches the hands of an impulsive consumer and should be avoided by such people, who live from day to day without having any savings.
The worst mistake of debtors
The most serious mistake that a person can apply for a loan is to deprive themselves of financial education. Most of the cases where the debtors end up buried in debt are because they do not know how to manage their debts and from there start all the other mistakes that create the path to a mess in the personal budget. This is why I created this blog, Good Finance, which I share everything I know about finance and I want to help you make the wisest decisions.
“The rich do not have the money, but the one who knows how to manage them. This is proven by countless lottery winners. Statistics show that very few of the lottery winners still have the money within a few years of winning. “
A very good example, which I would like to supplement with the fact that many of these winners even have debts after years of earning.
How to get rid of debt?
“Madness means doing the same thing over and over again and expecting another result.” For a person who is in debt, the best recommendation is, of course, to stop creating other debts.
A common approach of people without a financial education is that in a desperate case they resort to a new loan with which they try to pay the old one and so on, reaching 7-8 different rates, multiplying the debts they initially had. There are refinancing loans, which are a completely different story and are a wise solution for such situations.