If You Really Must Borrow

Summary: Before you borrow, compare! Find the best deal available to you.

Pay close attention to the Annual Percentage Rate (APR). The APR is extremely useful as a comparison tool. Always try to beat 13% APR. Usually you can beat it by a lot (if you keep your credit good)! Each state has different laws about interest rate ceilings. Check your state to see what the maximum interest is that can be charged. "Easy loans" are available with outrageous costs. Avoid them like the plague! If you aren't in the habit of paying off your credit cards each month, get in the habit! When you do pay off your cards each month, you pay no interest (most credit cards). If you're accustomed to the dangerous reasoning: "I still have unused limit", get over it! Use the wise reasoning: "I don't charge things with my credit card unless I have the money lined up." Watch out for exceptionally "low" or "no interest" offers. Pay close attention to the "fine-print" terms and costs. Beware: artificially low rates are often offset by increases in other costs. Beware of advertisers' claims: a. "Cash out your equity" also means: Get deeper in debt, risk losing your home. b. "Put your equity to work" also means: Get deeper in debt, risk losing your home. c. "Pay off high-rate credit cards" can mean: Lose your equity and jeopardize you home because you goofed up and ran up credit card debt. d. "Unlock your home equity with our credit card" means: Get deeper in debt & risk losing your home with an incredibly easy way to spend money. e. "Refinance and save" usually means: lose equity and pay us more interest. Pay early or on time to avoid late fees. Late fees can change a loan with a reasonable rate to one of an outrageous effective rate! Consider yourself late if you aren't early. To avoid bad credit, always make your payments before they are due. Bad credit is not only expensive because of late fees, but it is also expensive because of increased cost of future debt. If you've already been financially smashed, hang on until you can bounce back, or get help. Before applying for a loan (especially a mortgage loan), compare, compare, compare! Fees, rates, prepayment penalties, and terms. One hour of phone calls may save you thousands of dollars. When signing documents, understand what and why you are signing. Don't sign it if you don't agree to it. Take your time. If someone tries to rush you through signing documents tell that person to slow down or "take a hike." Plan on taking at least an hour to wade through a mortgage loan closing. If consolidating, expect delays, and keep all other obligations current. It is much easier to get a refund of an overpayment than to suffer from increased charges resulting from delinquency. Refinancing a mortgage loan can be great: a. If the interest rate of the new loan is significantly less than the old one. If the total of payments of the new loan is significantly lower than the old one. Refinancing a mortgage loan can be a disaster: If your equity gets eaten up by fees. If you run up new debt because your consolidated payment is lower. If you jeopardize your home by adding credit card debt to your home loan. (Some lenders love to put your equity into their pockets thru fees, interest, and prepayment penalties). Don't fall for scams. Popular scams include: Lotteries you've never entered. Phony cashier's checks to pay you. Tricks to get your account numbers or SS# and using your identity. Investment scams, especially pernicious when they involve you mortgaging your home to invest. Letting someone else use your good credit rating to buy homes, etc. Don't sign false statements, even simple ones like stating you intend to live in a home you don't intend to live in.