Borrow Smart: A Guide to Cash, Credit, and Common Sense

Article written by Shelby Anderson, Certified Credit Union Financial Counselor at Adventure Credit Union.

In week two of Financial Literacy Month, we are talking credit and borrowing. Honestly, not many of us have enough cash just sitting around to pay for college, a house, or a car without taking out a loan. But how do you know you’re borrowing wisely versus depending on loans to get by?

Life’s little surprises.

Life has a funny way of throwing surprises at you. One minute everything’s fine, and the next you’ve got a leak in your roof after a storm. If you don’t have an emergency fund set up, you might need to borrow some cash to handle those situations. Having established good credit, will help the process along and will make sure you can get the funds you need at a cost you can afford.

What’s up with needing credit to build credit?

It would have been awesome if our high school teachers had taught us how to manage credit, but for most of us, that just didn’t happen. So, we end up figuring it out as we go. Typically by opening up a couple credit cards, only making minimum payments and wondering why our credit scores are in the mid – 600s. If this sounds like you, check out our easy methods for paying down debt.

When it comes to establishing or building credit, a couple of good places to start are “credit builder loans” or secured credit cards. If you are going the credit card route, be sure to keep the balance under 30% of the limit.  This is called a credit utilization ratio but that’s a topic for another time.

Do you really need to use borrowed money for your purchases?

Ask yourself if you really need that new fridge or if you just want it because it looks nice in your kitchen. If it’s just a want, that’s totally fine! Instead of taking out a loan or putting it on a credit card, figure out how much you need to save each month to buy it outright. Sure, you might have to wait a few extra months, but at least the fridge won’t end up costing you more than what it’s worth.

Should I swipe the card?

Here’s the deal: be honest with yourself. Is it a good deal? Can you afford the monthly payments? Can you pay it off in full and avoid interest? How much interest are you paying? These are all important questions to consider before making a purchase. Sometimes our urge to buy something overpowers our common sense.

What if I need cash fast?

Watch out for places that promise “fast cash” they’re usually payday lenders with crazy high fees and interest rates. Some even claim to be credit building loans, but really, they’re just payday lenders. So always read the fine print, preferably before you sign anything. Is it boring? Yes, but it is important!

The bottom line

At the end of the day, borrowing money and using credit isn’t a bad thing—it just needs to be handled with care. When done right, it can help you achieve your goals. Just make sure you’re borrowing for the right reasons, from a trustworthy source, and have a solid plan to pay it back.