How not to fall into debt: 7 rules of a responsible borrower

Responsible borrowing is not just about following the rules, but the ability to understand your financial capabilities and avoid a situation in which the debt burden goes beyond what you are able to control. The more consciously you approach lending, the more likely it is that you will be able to avoid financial problems in the future. When you become a borrower, you assume obligations to repay the funds on time and according to the terms of the agreement.

It is important to remember that each delay increases your debt by charging penalties and interest, and can also negatively affect your credit history. Taking a responsible approach to loans will help you maintain a good reputation in the eyes of creditors and avoid many problems that may arise from poor debt management. Responsible borrowing also helps to avoid falling into debt.

How can I assess my solvency before taking out a loan?

Before making a decision on a loan, it is necessary to objectively assess your solvency. This means that you must carefully analyze your income and expenses in order to understand how much you can actually return. First of all, consider your monthly income and fixed expenses such as rent, utilities, meals, loans, insurance, and other mandatory payments. After that, you will be able to calculate how much free money you have left at the end of the month. This will be the limit that can be spent on paying the loan.

If the amount of your income is too small compared to debts and expenses, it is better to cancel the loan or consider reducing it. An example is a situation where a borrower finds himself in a difficult financial situation due to the fact that there are too many debts or his income is not growing, and expenses are increasing. Don’t forget to also consider possible changes in your financial situation. Sometimes people think they can afford to take out a loan, but in the future incomes may decrease and loan payments will be too burdensome. Consider all possible scenarios and risks.

Rules for choosing a suitable loan: how not to fall for scammers?

Loans are not always safe financial instruments. There are both reliable companies and scammers on the market who are ready to take advantage of your financial illiteracy. To choose the right organization and avoid fraud, follow a few simple rules. First of all, choose only trusted financial institutions that are licensed to carry out lending activities. Make sure that the company has positive reviews and that it is active in your country or region. If you are offered a prepaid loan or any hidden fees, be careful – these are signs of fraud.

Review all the loan terms, including interest rates, fees, deadlines, and late fees. Make sure that you fully understand what will happen to your debt if you fail to pay it on time. Remember that the low interest rate in promotional materials does not always reflect the real picture. Read all the reviews about the company and do not hesitate to ask the opinion of friends who have already taken out loans. Pay attention to their experience and make sure that the terms are transparent and understandable.

How not to delay paying off debts: the importance of planning?

One of the most important aspects of successful debt management is timely payments. As soon as you take out a loan, try to make a repayment plan right away. Do not delay payments for later, because every day of delay can increase your debt due to fines and penalties. Make a detailed plan that will outline when and how much money you should spend to pay off the loan. 

Understanding how much money you need each month to pay off your debt will help you avoid unpleasant surprises and avoid falling into debt.

Develop a budget based on mandatory loan payments. If you can’t make payments on time, consider reviewing your budget, reallocating expenses, or creating a financial “safety cushion” to help avoid unforeseen situations.

What to do if you have financial difficulties: how to avoid delays?

Life is unpredictable, and there are situations when financial difficulties can prevent you from fulfilling your loan obligations. It is important to know what to do in such situations, so as not to start the process of debt pit formation. If you have financial problems, do not try to solve them by borrowing money from other creditors, which will lead to the formation of a debt chain. Instead, contact your credit institution immediately and explain the situation. Most lenders are accommodating to their borrowers and may offer a deferral or debt restructuring. 

This will allow you to extend the repayment period and reduce the financial burden.

Sometimes, if you are unable to reach an agreement with a creditor, it makes sense to contact a specialized debt organization that will help you develop a plan to restore your financial stability. In addition, it is important to constantly monitor your financial status and avoid getting new loans until you repay old debts.

What should I do if I get into debt? How to get out of it?

First of all:

• Stay calm. If you find yourself in debt, it is important not to panic, but to develop a strategy to overcome the crisis.
• First, evaluate all the debts. Write down each debt, its interest rate, maturity, and monthly payments. This will help you determine the priority payments.
• Also, consider refinancing. Combining all debts into one loan can reduce the financial burden and simplify payments, since instead of multiple payments, one will remain.
• Also, arrange for a restructuring. Contacting lenders with a request to review the terms of the loan may lead to lower monthly payments by extending the repayment period.
• Finally, seek professional help. If the situation is critical, financial advisors will help you develop a plan to get out of debt.

Questions and answers