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American adults, in general, carry average debt loads between $34,000 and $134,000, with adults age 35 to 64 carrying the largest balances. And that’s not always a bad thing. A lot of that debt involves large purchases such as homes and cars. Responsibly paying those types of debts means you end up owning something of value. And manykinds of debt can have positive benefits for your credit history and score, increasing your buying power in the future.

But before you chase those positive benefits and borrow more money, make sure you understand whether the risks of borrowing money are worth it for you. Here are five questions to ask yourself to determine whether it’s the right time for you to establish more debt or apply for credit.

1. Are the Interest Rates Appropriate for Your Goals?

Interest rates are typically the biggest factor in how much your debt costs overall and how much any monthly payment might be. The higher the APR on a loan or line of credit, the more the debt costs. That also increases the risks that you might not be able to pay the debt back in a timely manner or that you become caught in a cycle of debt.

One example of this risk is often seen with payday loans. These are short-term loans with effectively high APRs, which means they cost a lot to take on. In some cases, you might borrow $200 and pay back a total of $300 or more depending on the fees and how long you wait to pay off the loan. If you are in a financial situation where you need a payday loan, this type of borrowing may not be the right decision.

Personal loans can be a more viable option for those who can get approved for them. APRs often range from 5.99% to 30% or more, though, so you do want to shop around and get the best possible personal loan for you. Consider the difference in the cost of the same loan with different interest rates:

You borrow $5,000 for a period of three years, or 36 months. Check out what you’ll pay total over those three years at various APRs.

  • 99%: $5,475.13 total with monthly payments of $152.09
  • 99%: $5,807.25 total with monthly payments of $161.30
  • 99%: $6,238.88 total with monthly payments of $173.30
  • 99%: $6,688.53 total with monthly payments of $185.79
  • 99%: $7,155.82 total with monthly payments of $198.77
  • 99%: $7,640.30 total with monthly payments of $212.23

Whether you’re financing a car, financing a bathroom upgrade or simply seeking some enhanced cash flow, the cost of taking out debt and the related risks can be much more when your interest rate is higher. There’s a difference in cost of more than $2,000 between the high and low interest rates above.

Another option to consider to reduce interest concerns when borrowing money is credit cards. Finding, applying and qualifying for a low-APR credit card can let you borrow money with little to no cost to you if you’re smart about it. It works like this:

  • Apply and get approved for a card with a 0% APR introductory offer. These offers mean that the credit card company won’t charge you interest on balance transfers or purchases for a certain amount of time. Typically, this can last from 12 to 24 months.
  • Read the fine print about the offer to ensure it covers purchases and find out when you need to make the purchases. Some offers only count toward purchases made in the first few months after you open the account.
  • Make the purchases and pay off the total balance before the introductory period ends.

If you can make an introductory offer work for you, you can save a lot of money. Consider the personal loan above, even at the lowest rate. You still pay $475.13 total for the loan.

If you put the same $5,000 purchase on a card with a 0% APR offer for 18 months, you could make payments of $277.78 a month on it and pay it off without ever paying a dime of interest. Obviously, though, this tactic only works if you can find the right credit card and pay off the balance in a timely manner.

2. Will Borrowing Money Damage Your Credit?

Apply for and borrowing money will impact your credit. Whether the impact is positive or negative depends on how you handle the account and how much other debt you’re currently carrying. If you have a high debt utilization, adding more debt can hurt your credit score. But diversifying with a new type of loan and making timely payments on it can help your score in the long term.

A loan or credit card can be a credit builder, but you should consider these factors before attempting to borrow money.

  • Can you afford the debt and will you make timely payments? If the answer is no, the debt is a liability for your credit history.
  • Have you completed a lot of credit apps lately? You want to avoid completing more than one or two applications in a short period of time because each app causes a hard pull on your credit report. That can lower your score 5 to 10 points. The exception is when you’re working with a broker or dealership to buy a car or get approved for a mortgage. Numerous applications during a short period of time in those cases read to the credit bureaus as a single attempt to borrow money.
  • Do you already have too much debt? Adding more debt, especially if you’re going to max out the credit limit, can negatively impact calculations used to create your credit score. For example, if you have $6,000 in available credit and you’re using $1,000, you have a credit utilization of 17%. If you get another credit card with a limit of $2,000 and make a $2,000 purchase on it, you now have available credit of $8,000 and you’re using $3,000 of it. That’s a credit utilization of 37.5%, which is considered high and may result in a lower credit score.

Consider how borrowing money will impact your credit score before you apply for a loan or card. After weighing the risks of borrowing money, you might accept a temporary hit to your score to work toward financial goals, but you might also decide it’s not worth the risk at this time.

3. Will Borrowing Money Strain Your Personal Relationships?

You might think you can bypass all these issues of interest rates, credit scores and damage to your credit history by borrowing money from friends or family. But before you hit your parents or loved ones up for money, ask yourself if borrowing money from them is really worth it.

This is a personal decision you should weigh carefully. Yes, friends and loved ones may give you a better interest rate than a bank, and they get to make money on the deal too. And this can be a win for you both if you know you can pay the loan back and they know they can afford to hand over the money.

But if anything goes wrong, it could put your relationship at risk. Make sure you’re willing to wager the relationship before you borrow money from someone you know.

4. Have You Considered the Risks of Borrowing Money for Your Future?

Make sure you understand how the loan will impact your future. This is especially important when dealing with long-term loans, such as mortgages, which you may be paying for up to 30 years.

Even with smaller loans, you definitely want to plan ahead and understand what you’re signing. Read the fine print of any offer before you borrow money so you understand:

  • How much the credit costs in the long run
  • How much you’ll need to pay back monthly
  • How long you’ll pay on the balance
  • What options you have if something changes in the future

5. How Does Borrowing Money Impact Your Budget?

Finally, consider the amount of money you need to pay every month to remain on positive terms with your lender or credit card company, and avoid negative reports to the credit bureaus. You can use Credit.com’s loan calculator to understand how much you’ll pay each month given various balances, interest rates and loan terms.

Before you borrow money, make sure you have that payment amount in your current budget. You may also want to consider whether you’re confident that the amount can be paid out of your future budget.

Considered the Risks of Borrowing Money and Ready to Take the Next Step?

Apply for a personal loan on Credit.com! But regardless of where you get your loan, know what your credit score is so you know what kind of interest rate you’ll be looking at.

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