What type of borrower are you?
How to make credit work for you and not against you
Jack, Co. Cork
“It was a challenge to get the mortgage I needed to buy my house. But yesterday, I found out I could buy takeout food on credit just like that. It’s funny how easy it is to get credit when you don’t really need it, right? I can afford a takeout every now and then! Still, I went for the “Special Deal” with desserts. There was too much food, but since I wasn’t paying for it yet…”
Does Jack’s experience sound familiar? It shows the difference between healthy and necessary debts (who can buy a house without a mortgage?) and unnecessary, optional debts. The way you pay for what you buy can have a big impact on your financial wellbeing.
Check the tabs below to see what type of borrower you are and how to make the most of the credit options available to you.
For the sake of it
When Queen sang, “I want it all, and I want it now”, they knew what they were saying. As human beings, our brain is programmed to seek instant gratification. Advertisers are aware of this and use this to encourage us to keep buying. You are using credit “for the sake of it” when:
- You use your credit card to buy on credit instead of paying your balance in full each month, despite having the money to do so.
- You spend more money on optional goods and services than you would have if the credit was not available. Do you remember Jack’s takeout food?
These types of debts are normally considered bad or unhealthy because they are usually expensive, may involve hidden fees and risks, and the benefit from buying them is long gone before you make the last repayment.
For more information, see the risks of unnecessary borrowing.
Smart borrower
Congratulations! You know how to use credit to achieve your life goals while ensuring financial peace of mind. Look at the actions of a smart borrower:
- You try to borrow money only for goods or services important for your future wellbeing, such as education, a house, etc. (also known as “healthy debts”).
- When you do borrow you do not accept the first or most convenient offer. Instead, you shop around and use comparison tools to find the best option. Afterwards, you keep track of your credit over time and switch whenever you find a better offer.
- You usually try to save before buying (Save Now, Buy Later). This way, you do not have to pay interest or fees.
- When you use credit for unnecessary goods or services, you shop around to get the best value and ensure you do not miss any payment.
For more information, see resources for smart borrowers.
Out of need
Anyone can face financial difficulties at some point due to a number of life circumstances. If you don’t have buffer savings or enough income, you may need to borrow money for daily expenses, which means paying additional costs for credit.
Getting support as soon as possible can make a big difference and help you out of the situation more quickly.
For more information, see how to tackle your debts.
