Borrowing money from an authorised money lender in Singapore is not inherently bad. But unwise borrowing can lead to bad habits that are hard to break. These bad habits can then lead to financial trouble soon enough.
Here are four common bad habits to watch out for.
You lack financial literacy
Being financially uneducated is the biggest reason for getting stuck in bad borrowing habits. If you do not know how to budget, for instance, you would not be able to keep track of your money. You would not know what you spend the most money on. And you would not know how to adjust your spending.
Also, a lack of financial literacy means you may not know the best ways to pay back your loan. You end up paying more in interest, as well as late payment fees and other charges for delinquent payments.
Also, you may become prone to taking out additional loans to cover for previous loans that you cannot pay back anymore. This will only trap you in a vicious cycle of debt, which can be extremely difficult to get out of.
You make decisions out of intense emotions
If you take out a loan because you’re desperate to find money, for example, then you are more prone to making bad financial decisions. You may no longer read the loan contract thoroughly or bother to find loan terms favourable to your situation. Emotionally-driven decision making is a bad habit, especially when money is involved.
Instead, you should always make financial decisions with a sound mind. Let your intense emotions calm down first before deciding to take out a loan. This way, you can find one with the best terms to fit your financial situation.
You settle only the minimum repayment amounts
Paying only the minimum amount every month is a common bad habit of borrowers. Sure, it prevents delinquency, but it only keeps you stuck in debt for a longer time. When you take more time to pay off your loan, you will pay more in interest. That means the overall cost to you of the loan is much higher.
As much as you can, pay the full amount per month. This way, you can get out of debt faster and minimize costly interest payments.
You borrow too much or too often
One loan occasionally is not a problem. But if you take out loans too frequently, or your loan amounts are too big, it’s not good practice. You should only borrow money when you really need to, not as a default means of securing extra funds.
If you have built a solid foundation financially – such as savings and emergency funds – you will rarely need to borrow money.
Conclusion
You can be vulnerable to these four bad borrowing habits, but there are ways to avoid them. Educate yourself financially, take control of your spending, and you will build good money habits. In turn, you will have to borrow less often from a Yishun money lender or other loan providers.
