Credit and borrowing are two behaviors that every adult will have to take part in sooner or later, at least if you want to have a good financial life. This might sound counterintuitive to some. Why would you want to take on debt if you want to build wealth? That’s because wealth building is a two-way street. It’s impossible to do it by yourself. Everybody who wants to get richer does so with the occasional help of other people’s money. Here are some of the ways in which this complex process works.
First, almost nobody can buy everything they want or need with money they already have. If you are a regular person, you’ll have to borrow money to buy a house. You’ll have to borrow money to buy a car. You’ll have to borrow money to go to a good college. Each of these expenses is a risk to take. If you find that you can’t make the payments, you risk defaulting on the loan or even going bankrupt. On the other hand, if you don’t take these risks, you won’t be able to increase your earning potential, have housing security, or move from place to place as you please.
This is where personal loans come into the picture. This review has details about Earnest personal loans. Loans like these come in many shapes and sizes. When used correctly, they should give you the money you need to improve your life and/or earnings in such a way that you can pay back the loan easily and make more money on top.
This is why people take out things like student loans. Student loans enable you to learn things you couldn’t without attending a specialized school. This education will hopefully translate into employment that will give you more money over the course of your life than you would earn if you didn’t go to school at all. There are, of course, exceptions, but generally borrowing money is the only way for most people to get ahead in this way.
Another way that borrowing money improves your financial life is in your personal credit history. Personal credit is built on times where you borrow small amounts of money (as you would when charging a purchase to a credit card). It’s a measure of how well you manage routine purchases when you don’t have cash on hand.
If you have credit cards, but don’t use them too much or too frequently, this will probably give you a good credit score. If you max out credit cards and take on as many as possible, this will make it look like you’re desperate for money, and that your income isn’t enough to sustain your lifestyle. This hurts your credit history and its associated credit score.
When you borrow money, either through a loan or a credit account, it’s important to pay it back quickly and reliably. Don’t ask for more than you need, and don’t use credit to sustain a lifestyle that is more than you can actually afford. If you follow these general guidelines, personal loans will help you improve your finances, not hurt them.