Thinking of taking out a loan? The low interest rates these days are very enticing to the consumer and when all else fails, a loan may be the only way to stay one step ahead of the collection agent.
We have been told over and over again that the mortgage payment is the first thing to pay back each month. But what if we get to the middle of the month and the money just isn’t there? Ok. So we stop at the ATM and withdraw some money from one of the several credit cards that we can still use. Or we borrow the money from one of the children’s college savings funds. Not a very nice thing to do, but hey, somehow you will replace that money. And how about that grocery bill? Will the manager let you transfer your outstanding account to the next month? If not, where will you get the money to cover the accumulated debt?
There are many reasons to take out a loan, some of them quite legitimate. But there are even more reasons NOT to take out a loan but most people don’t seem to pay any attention to any of them. Rather, they come up with the most ridiculous excuses for borrowing money—whether from the bank, a friend or a credit card. Here are a few good loan stories:
Taking Out a Loan for a Friend
One of the silliest reasons I have ever heard for taking out a loan was from Ralph, a guy who felt he absolutely had to help out a friend in need. The friend had lost his job and was really down and out. Ralph wasn’t particularly wealthy either but he managed to get through the month on the salary he made. But his concern for his friend was overwhelming. So he asked the bank to lend him some money and he turned it over to his friend. Silly move. There was very little chance he would ever see that money again. And now he is in the hole for the money and has to take cash out of his pocket to repay the bank.
Taking Out a Loan for a Wedding
Another no-no is taking a loan to cover the costs of your son’s wedding. Nuptials today are expensive affairs and can set you back a good few months’ income. You should have started setting money aside for your child’s wedding years ago. And your son should be participating in the expenses, as should his future wife and her family. Be that it may, weddings cost a fortune for a the pleasure of a few hours’ of dancing and eating. And with the rate of divorces these days, it would be more prudent to go easy on the wedding decorations and use the money instead to set up a divorce fund for use down the road.
Taking Out a Loan for a Gift
I’ve encountered many gals who think they need to take out a loan in order to purchase an expensive gift for their spouses. Their thinking is that if they give them a really great present, they will love them more and remain faithful to them. So they take out a loan to cover the cost of a week’s Caribbean Cruise or for a Rolex watch with all the bells and whistles. This is a futile attempt to win a guy’s love and usually backfires. As the song goes: “Can’t buy me love ….” Besides, going into hock just to buy a gift means having to pay that money back. And how is one to do that when the money wasn’t there to begin with? So why have the bank breathing down your neck. Not worth it. Just buy a gift you can afford.
Taking Out a Loan for Appearances
And what about the fashion model who needed to impress her colleagues. She was tall and slim and should have had a pocket full of mullah. But she squandered it away on clothes the minute she received it and never had enough to use it for anything else. When her friends decided to make her a birthday party, she looked around her two room apartment and realized, “Oh my God, this place is simply not presentable. I must do something about it.” So she took out a large loan from the bank to pay for a professional interior designer and she brought in one of the most expensive contractors in the city. Together they racked up a bill that was way above anything the model could deal with. Indeed, her colleagues were suitably impressed. To pay back the loan, however, she had to cut right back on her shopping, which she found very difficult to do. Soon, the debt collectors came knocking on her door.
Loans are useful on many occasions but using it to make a risky financial investment is illogical. For example, using borrowed money to open a stock or Forex account is taking a real gamble. It is just as easy to lose your money with these financial instruments as it is to come away with a profit. Heed carefully the famous recommendation made by many brokers: “Only invest money that you don’t need.” Certainly never invest borrowed money.
Loans should be used wisely and only when they make sense. A word to the wise is sufficient.
Cina Coren is a contributing editor to Daily Forex and a freelance writer for various publications.
