Borrowing money has never been easier than it is today. In fact, it’s fair to say that society and the economy virtually depend on debt! However, just because you can borrow, it certainly doesn’t mean you should. And while debt is an important – and major – part of society, you don’t want it to start running and overtaking your personal life. In today’s guide, we’re going to explore some of the things you need to understand about borrowing, to ensure you use loans and credit cards the right way. Read on to find out more!

Right: Figure out the cost

We all borrow because we want or need something, right? But whether it’s a car, a house, or a new gadget, it’s important to understand the true cost of what you are doing. Let’s say you see a lovely looking Ultra HD TV in your local store – it’s advertised as being on sale for $2,000, although the store also offers finance at 30% APR. The finance deal is simple – pay down 10 percent, and pay it off at $73.03 a month for three years. Seems reasonable, right? Wrong. By the end of the term, you will have paid an extra $829 on that TV – almost half of the original price. And if you get sucked into paying for a 3-year warranty as well, you will end up paying close to double. So, always figure out the real cost to determine whether the loan is a good idea or not.

Wrong: Pay for things you can’t afford

OK, so few people can afford to buy a home outright – or a car. But other than these important purchases, if you can’t afford to buy something with cash, you shouldn’t buy it ‘on tick.’ That goes for everything from basic home repairs through to Christmas gifts. Ultimately, using credit as some kind of quick ticket to happiness is destined for failure, and many people end up in serious financial trouble. Not to mention that fact that when you have to pay off debts, it’s stopping you from saving money yourself.

Right: Thoughtful borrowing

There are many circumstances where borrowing makes sense. For example, if you find a way to consolidate debt or find a personal loan that has a better rate of interest than you are currently paying on credit cards etc. Balance transfers can work, too, and give you an opportunity to get on a zero percent card and pay off your previous card in an aggressive way.

Wrong: The first loan you come across

You should never apply for a loan that you just happen to come across. Whether it’s from an internet ad or some direct mail that comes through your door, the simple fact is there are likely to be many better deals out there than the one that you find on the mass markets. It can make a big difference, too. Even a 0.25 percent difference on a mortgage product can result in thousands of dollars being added to your costs over the entire period.