The Intelligent Way to Borrow Money

By- Sana Faisal

Borrowing money is often seen as an unwise decision that can lead to financial difficulties, but the truth is, not all debt is bad. In many ways, if used strategically, borrowing money can actually lay the groundwork for financial freedom, but the key here is to be strategic. There is a right way and wrong way to borrow money, and many people end up saddled with debt for all the wrong reasons. If you want to borrow money, do it the intelligent way, and use debt to help you step up to the next level, there are a few things you must do.

Here's how to use debt the smart way:

Use Debt to Build Your Credit Rating

In order to qualify for things like home and car loans, you first must display that you're a good borrower. This is where your credit rating comes in. Over time, if you show that you can handle borrowing money and pay it back reliably, you increase the likelihood that you will qualify for a bigger amount and get a lower interest rate. In order to do this, you'll need to strategically create smaller credit accounts. You can start with stationery retailer credit, buy a few things on that account, and then pay the money back. From there, you can work your way up to gas station accounts, and even clothing accounts. What you're trying to achieve is a good track record so that a lender can trust you to pay back the money you borrow. This is how you'll be able to finance your bigger plans.

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Buy Real Estate

The smartest way to use debt to your advantage is to buy real estate. It's very difficult to buy a home without some help from the bank, and therefore most people get home loans. It doesn't just have to be for a home you'll live in, it can also be for investment properties. Owning a home unlocks many other doors financially. For starters, you have your own place to call home, and that feels great. It can also help you reduce your living expenses, but most importantly, it gives you an asset that you can use to further improve your financial situation. Once you have a home loan, and you've put some equity into it, you can actually borrow from this money and apply it to other financial strategies. How can you find how much you would qualify for based on your home equity? One way to find out is to use an online calculator. You can find a great one at https://reverse.mortgage/calculator.

Don't Mishandle Your Credit Card

A credit card can be a great resource to tap into when you have a financial emergency, but it should never be treated like a stream of income. If you have a credit card, you're going to have to be extremely responsible with it. Left uncontrolled, a credit card can become a source of stress and cause a huge strain on your finances. One of the biggest mistakes people make when they have credit cards is to only pay the monthly minimum payment. The problem is, if the minimum payment is only a small fraction of the total money you owe, you'll never be able to reduce your debt, and you'll be trapped in a vicious cycle. If you have money on your credit card, payback as much of it as you can, and try to avoid maxing it out. That way, it never gets out of control, and you don't further eat into the money you do have.

Left uncontrolled, a credit card can become a source of stress and cause a huge strain on your financesUnsplash

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Set Up a Business Entity

If you're a real estate investor, don't get loans for your ventures in your own personal name. One of the smartest things you can do is to legitimately set up a business entity and then carry out all your financial and investing operations through it. That way, in the event, that things go wrong with a business venture, your personal credit rating is protected, and the business entity absorbs the loss. Many investors have found themselves in a situation where they can't even transact in their own name, and they all advise new investors to avoid this by protecting themselves on the front end.

Borrowing money isn't always a bad thing, sometimes it's the best financial move you can make. If you understand how to use debt strategically, you can do a lot more for yourself. Instead of using loans and credit cards to fund a lavish lifestyle, you can be more controlled and use them to fund business ventures and make your life better in the long run.