When you have to borrow money – and most people do at some point in their lives – there are various legal and financial ramifications to making the wrong decision. The last thing you want to do is let borrowing money ruin your credit score or set you up for legal action. Follow these eight rules and you’ll be safer when it comes to borrowing money.
Borrowing Money: Be careful about paying it off early.
Many loan agreements have penalties for paying the loan off early, so be sure to read the fine print. If you have enough money to pay the loan off early, consider putting that sum into a high-interest savings account so you earn a little extra as you continue to pay off the principle of the loan.
Borrowing Money: When you borrow from friends and familyÃ¢Â?Â¦
Although borrowing money from friends and family is not always such a great idea, you can make the process less painful. Try using a company like CircleLending, which helps people draft loan agreements and will help you and your friend or family member to manage the payment process.
Borrowing Money: Bankruptcy should not be an option.
Many people rely on bankruptcy like a security blanket that chases the bad debt away. With the new bankruptcy law, many debts are not covered by bankruptcy, and if you file now, you can’t file again for another 6-8 years.
Borrowing Money: Be careful of grace periods.
Cash advances from credit card accounts usually have no grace period, which means that interest will begin to accrue from the moment you take the cash from the bank or ATM. That means that even if you pay off the cash advance before the next billing cycle, you’ll still pay interest on the cash you were given.
Borrowing Money: Be wary of your ratings.
Failing to pay your debts on time is the number one reason for a drop in credit ratings. When you borrow money, make sure that you’ll be able to pay it back on time. Further, creditors can take you to court for unsatisfied debts, which means even more money down the toilet.
Borrowing Money: Follow the 80% rule.
Credit experts advise that you not charge business expenses if your credit card debt is more than 80% of your limit.
Borrowing Money: Beware of credit predators.
Just because you’re in a sticky situation doesn’t mean you should pay for it. Many predatory lending practices involve charging a higher interest rate than what the risk qualifies for, especially to people who are desperate for a loan. Don’t fall for that trap, and do your research.
Borrowing Money: Corporate woes.
Even if your business is incorporated, when you (as the owner of said business) personally guarantee a business loan, the creditors can come after you for the debt if you are unable to pay.