Hello, I'm your host, Mr. Chuck. I'm a retired accountant turn truck driver, I have reduced my debt to zero in a short matter of time, debt reduction to achieve financial freedom takes commitment, confidence determination, you're wanting to borrow some money, but don't know where to go or what to do what get started in one moment. Together, we're going to explore our finances and figure out how to improve them. reduce debt increase wealth is a podcast to inform those to improve personal finances, whether it's eliminating debt or making smart investments, you're thinking about borrowing some money, in not sure what you should be doing to prepare before you go out and meet with the lender. The first thing you need to do is ask yourself, why are you borrowing the money? And two? Do you really need to borrow this money? What are you using the money for? Are you going to use it to buy a new car that you really don't need? Or are you going to use it to consolidate and pay off all those high interest rate credit cards, whatever you're going to use a for? Do, you really need to borrow the money, quit thinking about what other people think of what you own, or what you have. You only need the things that you need, and not what other people think you need. Having a new car to impress somebody may not be the best financial choice for you at this time. Maybe you need to increase your emergency fund first, before borrowing more money. You need to think about these things before you go out and apply for a loan. Once you decided you need a loan for whatever the reason is, and you can't get by without it or it will improve your financial picture down the road. The next thing you have to have is a budget. How much income do you have? What are your monthly expenses? And can you afford this loan? If you're going to use it to consolidate and pay off credit card debt, and the loan payment is going to be less than all the credit card minimum monthly payments? You most likely can afford it. But don't just think of that. Look at 100% of all the things you're spending money on every month that you have to pay no matter what do you have a mortgage payment? Do you have another car payments? Do you have child support? Do you have the pay for school for a private school. All these things should be taken into consideration. Before you apply for the loan. The lender may say you can afford more than what you really need. Don't fall into that trap. Only borrow the amount that you intended to borrow when you want to the lender. Even if you qualify to borrow more, don't do it. Only borrow the amount that you need. Remember, your long term goal is to eliminate all your debt so you can achieve your financial freedom. Also, if this loan is going to cut into your savings, whether your savings for retirement or savings for your children's education, or you're saving up for a down payment for a new home, don't borrow money that's going to cut in to your savings plan. Stick to all your plans and only borrow the money. If it's gonna help you achieve your goals faster. He decided you really need this loan. You have your budget in place and you are pretty confident you can afford the payment you want online. You Put in $1 amount that you're going to borrow, you put in interest rate you think you're gonna get, put in a little bit a higher interest rate, and see what the monthly payments gonna be, you've done all that and you're confident you'll be able to pay it and still stay on track with your budget. And on track with all your savings that you have in plan, the next step is to check your credit score, do you know what your credit score is? A credit score is what the lender is gonna use determine how much risk you are to them, the higher the number, a credit score range from zero to 850. If you have a credit score, like I do around 825, you're not gonna have any problem getting any loan at a favorable rate of interest, the lower your credit score, if you have a 350 credit score, you probably won't get the loan, you're gonna have a hard time borrowing the money, and to your gonna pay a high rate of interest. II need to work on your credit score and improve their credit score, that should start doing that six months to a year before you thought about borrowing this money, it's too late now. So check your credit score, make your all your payments on time. And that will help you over time, increase your credit score. If you have a lot of credit card debt, and you got a maxed out to their limits, that's gonna hurt your credit score. If you're borrowing this money to pay off all those credit cards, that lender you're gonna talk to most likely is gone to require you to cancel those credit cards. You pay them off, and then you cancel them. That could hurt in the short term, your credit rating, because you're getting less credit. If you have a credit rating of 550 or higher, six 650 you're not going to have a whole lot of problem, you're not going to get the lowest rate but you're gonna get a decent rate of interest. What are your borrowing the money for is your next consideration. If you're borrowing the money to buy a home, or you're borrowing money as a line of credit against your home for a home improvement project, then you need to find those lenders who give out home equity loans. Your bank might do it or there might be other mortgages and that would be a lien against your property. It's usually a loan that you can draw on they give you that a limit of the amount that you can borrow based on your other loans and your credit rating and your income. For example, I have an equity line of credit on my home at $40,000. I had the home paid off completely, I probably could get that increase. But a home equity line or credit genuinely comes at a higher rate of interest than a home loan. A first mortgage you can get now for around 3% or maybe less. an equity line of credit is going to cost you five to 6% depending on your credit rating. So you would go to places that offer that could be your local bank could be a credit union, etc. If you're gonna buy a new car, you want to go to a dealer. Now a lot of new car companies offer financing. If you hit it at the right time, when their sales are slumping. They may offer a six or seven year loan was zero rate of interest. That would be the most preferred thing to do. I personally don't buy new cars. I think they're a waste of money. You buy a new car. As soon as you drive it off the lot. You lost 20 to 30% of its value. If you sell it a week later, you lost money and you still owe what you paid for it. I personally look at a good used car, I figure out what kind of car I want, what I'm interested in the type of car and what features I want. And then I watch them as they come off of leases. And you can find a really low mileage used car now, usually three years, three years old, with all the features you want, maybe not the exact color, but you can save a significant amount of money. The downside to buying a used car is the loan interest rate are higher than what you could get on a new car, a new car interest rate might be three or 4%. I used cars seven, eight or 9%. Again, it's all based on your credit history and your credit rating. I have a couple of articles in my show notes that I'm going to refer to and depending on the other types of loan, where you would go and get them but I have two articles and 10 things to ask before you borrow money. Maybe not to ask or to consider. And this is from www dot discover. com that credit card company personal loans, resources 10 things to ask me for borrowing money. And number one, you need to be careful who you borrow from when borrow money, it makes good sense to only consider reputable lenders. In addition to doing your homework, be cautious about payday lenders and untested money borrowing apps. Borrowing apps are basically payday lenders. And if you don't know what a payday lender is, that's a place you go to borrow money to your next paycheck. And it's a really high rate of interest. So they're really gonna rip you off, too, to think twice before borrowing from family or friends. Because once you owe them money, you could cause some problems. If something were to happen, and you're unable to pay it back, you could cause some problems. So don't do that. Understand interest rates and the cost of borrow money. It doesn't matter if you're borrowing from a bank or using a credit card. It's imperative to know how the interest rate works. This will help you better understand how much you're paying in interest over the life of the loan, or simply put how much the loan will cost. The annual percentage rate is essentially the cost of borrowing the money you need. The Lender should be able to tell you the rate and how it affects your monthly payment. If the rate is fixed, as is most personal loans, then your monthly payments shouldn't change as long as you make your payments on time. paper was higher credit score typically pay lower interest rates, which may lower the cost of borrowing and for know why you're borrowing the money. And we already talked about that. Do you really need to borrow the money? And what are you going to use it for? And what are you going to buy? Do you really need that item that you're thinking about buying? Number five, create a plan for paying back the money ASAP. Before you accept the funds create a plan for paying back the money. With this plan in place from the start, you'll know which steps to take to minimize the impact of the loan on your finances, both in the short and long term. With a personal loan from discover, you could have a pre determined payoff schedule and fixed monthly payments. So you have a clear payoff date. I'm not getting paid my discover it's just in this article. They're promoting themselves. If you have yourself a budget, and you think you can afford this loan, try six months before you borrow the money or at least three months. Put the amount of money that that payment would be in to your savings account and build up your emergency fund. That way if something bad happens, you won't be hard pressed to come up with money to cover those expenses and you won't have to charge it on credit cards. And number six, not all loans are created equal. You should never assume that all loans are the same as this could lead you towards the wrong product and are paying more in interest in necessary. For example, there are some differences between a personal loan and a personal line of credit as well as between a home equity loan In a personal loan, knowing the pros and cons of all your options will allow you to make an informed and confident decision. One of the advantages of the Personal Loans For example, is it doesn't require collateral, you're not taking a loan against your house or car. And generally speaking, you're going to have a higher rate of interest. Number seven, some banks offer better terms than other so do your homework, check around and see what's out there. Again, avoid using payday lenders, or apps online that you got on your smartphone because are nothing but payday lenders and they're gonna charge you a very high rate of interest. Eight think about what to pay for first. Unless you're borrow money for one specific need. You want to prioritize your spending, choose your pay for a home repairs first than medical bills, should you pay for education expense, then tackle projects around the home prioritizing your most critical needs ahead of time to help you get the most out of the money you borrow. So you're gonna borrow money, it's a personal loan, let's say you're getting an 8% rate of interest, I would suggest you pay off all your high credit card credit card, enter that first, as that's gonna have anywhere from a 17 to 20 something percent rate of interest, that would be considered a loan consolidation. If you have other things that you need to pay. If it's medical bills, contact your medical provider and set up a payment plan with them directly, as most medical providers will not charge you any interest. So pay that to them directly. And don't use money you borrowed to pay your medical bills. That's my experience. If you need a home repair, something that needs to be done, so you can keep the home livable. Then again, you got to do that first. And number nine, don't bite off more you can chew. This because you qualify to borrow a certain amount of money doesn't mean you have to. If you need $15,000 an qualify for $30,000. Don't ma e the mistake of the taken t e additional money if you're n t sure be able to pay it back n time. Remember, your goal is o reduce your debt. If you ta e more than what you need, you' e not reducing your debt 10. Ev n if you're in a hurry, you shou d remain patient. Whether it s choosing the lender r methodically paying down t e balance of alone, try to st y patient and follow your pla. This can help you get the mo t out of the money you borrow a d have a better financi l opportunities in the future. o don't make an extra payment n there. If it's gone to p t stress on Yeah, and cause y u not to make timely paymen s elsewhere. Then I have my seco d article, borrow the mon y without going broke. And this s that the balance com borr w money without going broke. Ma e sure it makes sense. The fir t step is to make sure th t borrowing is actually the rig t choice. If you heard of go d debt and bad debt, you' e familiar with the concept. Go d debt pays for things so provi e long term value, and possib y even gain value over time. b d debt pays for curre t consumption. assets th t depreciate in value too fas, like cars are risky assets r investment that might lose the r full value or not genera e enough to cover the princip l and the cost of debt. Exampl s of good debt a college degree o some people with a colle e degree or tend to earn more ov r their lifetimes the purchase f affordable home if all go s well, since it can find lo g term financial benefits a d control over your environme t might even get to sell it at a profit someday. Examples of b d debt is buying expensive ca s that would lose val e immediately and continues o lose value over time. You mig t even owe more than the car s worth paying bills such as cab e phone bills and entertainme t expense. Since there's no way o keep borrowing to cover basi s expense will all come to an ug y and someday before you borrow a valet, how long did that wi l last and how much it will co t in total adding principal a d interest compared to how lo g the benefits will last into o e mount, they will rise or fal. If it's not an investment n your future, look at other wa s to find the name, I got a no e here, if you use a credit ca d to pay your monthly expense, and you're not paying th t credit card off every mont, you're living beyond your mean. You need to look at yo r spending and cut back somewher, because you should be able o pay that credit card off. So f you're using a credit card, a d you're trying to get more rewa d points, and you're using it o pay all your utilities and a l your monthly expenses, a d you're not paying it to ze o every month, first thing you g t to do is quit doing that. Seco d thing you need to do is sta t paying on it and get it to zer. If you got multiple cred t cards, you know doing the sa e thing, or using credit card a o pay credit card B and it com s to zero, then you're usi g credit card B to pay the cred t card see it doesn't come o zero, then you borrow more, a d you go back and pay if you u e them credit to pay credi, you're in trouble, run so e numbers, calculate your month y payment, what your debt o income ratio, if you' e borrowing a home, it cannot e more than 42%. If you borr w money, anything else, your ho e that the income ratio should e around 35% for an automobil, maybe 10 to 15% a personal loa, maybe five to 10% of your gro s monthly income. That's just so e numbers right off the top of y head, borrow money was b d credit, he had bad credit, it s hard to get approve any loa s you get will have higher rat s of interest, which you're gon a pay more build or rebuild yo r credit. If you borrow money a d repay on time, your credit wi l improve, you might not be ab e to get approved for the loan y u want today. But over time, y u can get your credit to a bett r place. Again, check your cred t scor making timely payments on everything. And making timely payments on all your loan is more important than making extra payments on those credit cards. So making the minimum payment on time every month is more important than applying two or$300. Extra every month and being a day late. as funny as that sounds. That is true. Be back in one moment was my final thoughts. If you listen to this podcast using an apple podcast app, please rate and review this podcast for all your non Apple users. You can download iTunes on a Windows machine and go to the upper left hand corner, select podcast, do a search, reduce that increase Well, you can then rate and reviewed the podcast and also follow the podcast. I appreciate any feedback that I may get. Do you really need the money that you're about to borrow? Do you really need to buy the item that you're borrowing the money for? You need to think deeply and seriously. You also need to plan ahead before making any purchases that requires you to borrow money. That way you can get your budget under control, maybe increase your savings. So you have a bigger downpayment or you can borrow less money. Whatever the case, does it make financial sense for you to go out and borrow money now? Or can you put it off another six months, nine months or even a year to make sure you really need that item that you're trying to borrow the money for? Or that make sure that you really want to consolidate those credit card debt? Do you have a debt reduction plan if you're trying to consolidate? If not, you need to plan ahead. Don't be the person that goes out and is borrows money at a moment's notice to buy whatever they think you want or need. And then one day, you may wake up and find out. You really are working for the banks, credit card companies. You're not getting any further ahead and you're always broke. Don't be that person