Smart Tips for Borrowing Money and Using Credit
Borrowing money can be helpful, but it’s important to do it wisely. Whether you’re thinking about a loan, using a credit card, or buying something on finance, these tips can help you stay in control of your finances:
1. Do Your Research First
Take the time to shop around and compare deals. Even if you’re in a hurry, it’s worth checking the terms carefully — a quick decision now could cost you much more in the long run.
2. Look at the Total Repayment Amount
Don’t just focus on a low interest rate (APR). A shorter loan term might mean higher monthly payments, but you’ll often pay less overall.
3. Understand Secured vs Unsecured Loans
A secured loan is tied to something valuable — like your home. If you miss payments, you could lose it. An unsecured loan doesn’t put your assets at risk in the same way, but usually comes with higher interest.
4. Know Your Budget Before Borrowing
Make sure you can afford the repayments. Use a budget planner to work out your income, bills, and spending before you take on new credit.
5. Avoid Impulse Borrowing
If you’re making a big purchase like a car or household appliance, don’t rush into store finance deals. Sales staff might push expensive credit options — check if cheaper alternatives are available first.
6. Think Twice Before Consolidating Debt
Borrowing more money to pay off old debts might seem like a solution, but it often leads to deeper financial trouble later on. Consider all options first — speak to a debt adviser if you’re unsure.
7. Check If You Need Payment Protection Insurance (PPI)
If you’re offered PPI, read the fine print. Make sure it covers your situation — some policies exclude self-employed people, those with health issues, or anyone over a certain age. You might already be covered through work or another policy.
8. Be Wary of Interest-Free Credit Offers
Interest-free deals only save you money if you pay the full balance within the offer period. If not, you could be charged very high interest later.
9. Watch Out for ‘Payment Holidays’
Some credit cards and loans offer a break from payments — but you’ll still rack up interest. It may seem helpful short-term, but it usually means you pay more overall.
10. Check What a Rate Rise Would Mean on a Mortgage
If you’re looking at a variable-rate mortgage, ask what your monthly payments would look like if the interest rate increased by 2%. If that would stretch your budget too much, a fixed-rate option might be safer.
11. Pay More Than the Minimum on Credit Cards
Aim to pay off at least 10% of your credit card balance each month. Paying only the minimum could mean you’re in debt for years and paying a lot in interest.
12. Agree an Overdraft in Advance
Going into overdraft without arranging it first can lead to hefty charges. Speak to your bank to set up an authorised overdraft limit if you think you might need one.
13. Avoid Loan Sharks
Never borrow from illegal lenders. If you’re struggling to get credit, consider joining a Credit Union or exploring options like the Social Fund for support.
For more help on borrowing responsibly — including information on different loan types, credit cards, insurance, and avoiding loan sharks — see Types of borrowing or speak to Citizens Advice for free guidance.