Before you sign up for a credit card, bank loan or store card, or add to an existing card or loan it makes sense to think about whether you really need to borrow money. At times like this – with economic uncertainty and rising bills – many people are now choosing to pay back money they’ve already borrowed rather than borrow more.

Deciding whether you should be borrowing money

There are some very important questions you need to answer before you borrow money.

You should ask yourself if:

  • You need to spend the money
  • You have other ways of financing the purchase, and
  • You can afford to pay back the money you’re planning to borrow.

Do you really need to spend the money at all?

If you have a tendency to buy things on impulse, try giving yourself a cooling off period of at least two days. You might find you’re not so keen to buy it.

Some people who borrow money do so either without thinking if they can really afford it, because they feel they have no other option, but that often isn’t the case.

It might be that you could put off making the purchase or not make it at all.

Try asking yourself:

  • Could I wait until I can afford to buy the item without borrowing?
  • If there’s something I need, is there another way of getting it, for example, swapping it for something else, buying it second-hand or getting it for free from a free recycling website?

Can you save up or use some savings instead of borrowing money?

If you really don’t need to spend the money today, then you should seriously consider saving some money each month rather than getting into debt.

Need someone to talk to about your finances?

If you’re struggling with money, you can talk to someone today, online, by phone or face to face. There is specially trained advisers who can help you start sorting out your financial problems.

If you can wait and save up for a purchase, instead of using credit, it will cost you far less, unless you qualify for a 0% credit card deal, as you won’t have to pay any interest.

It might also have been reduced in a sale or if it’s technology, upgraded to a better model.

Saving before you spend

If you don’t have any savings, but can save, for example, €/£50 a month, it would take you a year to save the £/€600 and you would have earned interest on top of this.

Cashing in savings

If you used the money from your savings account; assuming your savings earned 1.5% a year, you would lose a maximum of €9 in interest if it took you a year to save the €600 again.

That means spending €600 from your savings would ‘cost’ you a maximum of €609 by the time you’ve added in the lost interest.

Using a credit card

If you paid the €600 by credit card, charging an average interest rate of 17%, and if you paid the debt back at a rate of €50 a month, it would take you 14 months to repay the debt and would cost you €58 in interest.

That means you’d be €49 (€58-€9) worse off by paying on your credit card, rather than cashing in your savings.

At Flexiwage our groundbreaking technology lets employees build payday around their life, not their life around payday.  We empower employees and employers to make smarter financial decisions. We believe employers care about their employees financial wellbeing and we know that a happy employee is more productive and engaged.  If you would like to learn more about our solutions please email; support@flexiwage.com .

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