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A lot of people are borrowing money left and right for a number of reasons. With a lot of options on where to take out a loan, this cycle seems never ending. According to Statisticbrain.com, about 25% of American consumers do not have a savings account and these are probably where most of the borrowers are coming from.
The less income you have coming in and with all the expenses in life, there is a big chance that you would have to keep on borrowing from lenders just to make ends meet. There are also people who do not earn a lot due to underemployment but still face steep payments that includes living expenses to loans and other consumer debts.
Debt freedom seems to be a far away place for people who are in the red because they have to keep borrowing money to meet their expenses. It is a debt cycle that is truly difficult to get out of – unless they take drastic measures. Apart from people who do not have any savings and are earning less than what they need, there are also people trying to front a lifestyle they cannot afford. Some people want to project an affluent life for all the world to see but in truth, it is something that they obviously do not have the financial capabilities to support. Relying on debt to support this expensive lifestyle is recipe for financial disaster because the amount due just keeps getting bigger together with all the interest and fees added on to the loan.
The truth is, debt becomes a terrible financial choice once consumers abuse it. There are debts that can become a means to promote financial stability – if you know how to handle it properly. This seems to run contrary to what most financial experts would advise but it is possible that a loan can help further your finances. If you are looking to start a business, a loan is a great tool to get started with it. Or you can use it to invest in your knowledge and skills by getting a student loan to help you be qualified for a higher job compensation.
Why you are better off taking credit from credit unions
Whas11.com shares that the student loan debt is already at $1.3 trillion and chances are it will get bigger. Some people borrow money to pay for school but the interest rate and the repayment terms are quite challenging. There are some who just needs the money to meet a high monthly payment for a bill. While some needs to make a big purchase for a given month. Whatever the reason may be, there is another option to get the funds that you need to improve your financial situation. It is a legal option that is not as common as getting from private bank.
We are talking about a credit union.
Investopedia.com explains that credit unions are owned by the people that pooled in the money for the union. This is usually formed by big companies for their own employees. Here are a few reasons why borrowing money from a credit union is sometimes better that other large financial institutions as a lender.
- Loan interest rate. When you are looking to take out a loan, one deal breaker would be the interest rate. The higher the rate, the more you will have to pay out over the course of the loan. There is a big chance that you will understand what debt hell means especially when you miss payments. But credit unions offer some of the lowest interest rates in the market. NCUA.gov shows that credit union rates are sometimes half of what private lender offers.
- Motive behind the union. The big banks and other similar financial institutions are created to turn a hefty profit for the shareholders. The credit union on the other hand also aims to make money but their priority are the members. It helps that credit unions adhere to a cooperative structure, the members comes first before the need to rake in profits at the end of the year.
- Quality customer service. You cannot deny that when borrowing money, one of the things you will look for is the post-loan relationship with the lender. You can never predict the future so in case anything happens, you can quickly reach out at any given time and contact your lender. Credit unions may not rival the 24/7 customer service models of big banks but they are able to deliver quality service with the representative being able to call you by your first name.
- Credit unions are fee-friendly. This means that they do not impose a lot of fees related to your financial transactions. One example is that most of the credit unions do not put fees in case you do not have money in your account. If that was the case in a regular bank, you would already be seeing fees being assessed on your account.
- You get money. Yes you read that right, credit unions will give you money in the form of dividends. Borrowing money is one thing but getting some without asking for it is another. Of course, the amount may not measure up with what you need but free money is still great.
Here is a great video that differentiates credit unions from banks:
Important reminders before you borrow money
Taking out a loan or borrowing money from lenders is not as easy as it sounds because this is a great financial responsibility. It’s not like asking your parents money when you were still small and you did not have to worry much about repayment. When you are looking to borrow money for a business or for higher education, there are a couple of things you need to take note of.
- Borrow only what you can afford to pay off. It is quite tempting to borrow more than what you need only because the opportunity presents itself to have quick money. But you need to remember that you are taking money that you will be paying interest on. Try to keep the loan to the minimum to make sure that your repayment amount is manageable.
- Use the loan for what it was intended for. Borrowing money should not be just a random thing you want to experience. You need to have a purpose for the loan because this will define how you use the money. If you are trying to pay for medical debt, then use the loan only for that and not buying a new car or a new piece of jewelry.
- Know your payment plan before borrowing money. Even before diving head first and taking out a loan from either a credit union or a lender, you need to have a payment plan. You must revisit your budget and see where the payments will be coming from. It is a little easier if you have a big wiggle room in your budget but if you are running a tight ship, knowing how you will make the payments is very important.
Borrowing money is something that most of us will encounter in our life. It is important that you know your options so you can figure out which source of financial aid you will benefit from the most. Whether it is through a traditional bank or a credit union, you have to ensure that you can commit to the loan that you are making. Otherwise, you will be digging a debt pit so deep that it will be very hard for you to get out of.
