How do I know if I am borrowing well?

How do I know if I am borrowing well?

Debts are not good or bad by themselves, but it depends on what they are acquired for and what benefit they provide in the future.

It would be ideal to be able to pay for higher education, a car or a house with the money saved from salary. But it’s hard for him low level of salaries in the Ecuadorian economy. Therefore, for a large majority of Ecuadorians the credit (that is to say, debt) is a mechanism to access these goods and services.

The main question, in this context, is when it is good to acquire a debt. The answer is that you have to know how to do it. It’s okay if we get into debt for a vacation or a car, if we do it the right way. And this way implies being clear about what for, how the debt and how you are going to have the debt under control.

However, the best scenario is when the debt generates profitability in the future. Carlos Reinoso, a personal finance advisor, explains that, especially in the case of an entrepreneur, you should always ask yourself the added value or additional benefit that the debt.

The question to ask yourself is: How much more income is this borrowing going to bring me in the future?

“So if you go into debt to invest in something that is going to give you a return above the cost of the debt, well, congratulations because you have made your debt a good deal. But if it’s the opposite, and you go into debt to cover a gap in your budget, but create another one without controlling your expenses, I’m sorry, you’re wasting resources,” he said.

Reinoso assured that the general principle of indebtedness can be summed up in a simple formula: return on investment > cost of debt. debt.

Without information mistakes are made

In general, the problems of debts They arise from not having complete information and not planning in time. As in a soccer field, you have to know what is convenient, what are the strengths and thus define a strategy: more installments implies more time to pay them, but also that the interest that ends up being paid will be higher.

Therefore, before purchasing a debt it is vital that the information is clear. For example, how much profit does the product or project in which you are investing represent? How long will it take to pay? How much is the interest rate? Can the installments be paid without the salary ending?

All these calculations are important in order to accept the debt responsibly, knowing that it can be paid for. As always, it is a matter of information, which allows you to make better decisions.

If there are several debts must be prioritized according to the payment conditions of each one. Those with the highest interest rates should go first, obviously without neglecting the others. It may be possible to save to advance the payment of installments and thus reduce the time of payment.

The old method of listing all the debts (along with their respective dates, installments and interest rates) to systematize these payments. Although it can be tedious, debts must be faced and addressed. It would be useless to relegate them to the back of the mind as if nothing happened. This also applies to the payment of credit cards, since the organization is essential so that the dates are not passed or interest is not accumulated. (JS)

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