Most people borrow money at some point in their lives. It could be a small loan or a large mortgage, borrowing money is part of modern life. But many people are intimidated by the prospect of borrowing, and as a result they buy into the myths that often circulate about borrowing. Borrowing money doesn’t have to be a bad thing; in fact, it can give you a lot of flexibility and provide opportunities that would otherwise be closed to you. If you want to be smart about borrowing money, then you should be aware of these myths and stop believing in them.
Credit Cards Are Bad
Many households are saddled with credit card debt, and the interest rates can get really high. This causes many people to mistrust credit card loans, believing that you should stay away from them altogether. If you use credit cards responsibly, you can actually raise your credit score. Credit cards also provide a secure means of paying for items and it is easy to track suspicious activities.
Paying Off Debt Takes Priority Over Saving
Contrary to what you often hear, you don’t need to be debt-free to start saving. In fact, it is even more important that you try to save, because in the event that you no longer have income, the last thing you want to do is to try to borrow more money to service the debts you already have. It is crucial that you have some savings set aside for emergencies — even if it’s just a few hundred dollars.
Your RRSP is Your Emergency Fund
Many people see their RRSP as a source of emergency funding. When you borrow from your RRSP, there are penalty taxes and fees involved. As well, your RRSP is intended for income once you have retired, not for spending, and once the money is withdrawn it can’t be contributed again.
You Should Borrow the Maximum Amount
Just because you might be eligible for a certain amount, doesn’t mean you should borrow that entire amount. You should carefully consider if you are able to repay the loan — especially when you take interest rates into account. This goes for any type of loan, including mortgages and credit cards.
Borrowing money can help your finances if you do it correctly and responsibly. If you are imprudent when taking out loans, you pay a heavy price in the end. Understand your situation and know what you can handle. Educate yourself and do not listen to conventional wisdom. If you want to find out more about debt management and financing, then get in touch with one of our brokers.