Borrowing Money—The Good, The Bad, and How to Do It Smartly
January 15, 2025
6 min read
Hey there! I’m Isabella Greene, and if you’re someone who’s thought, “Should I really borrow money for this?”—you’re not alone. Borrowing money can be both a lifeline and a double-edged sword, depending on how you approach it. I’ve been there too.
From taking out a student loan to fund my college education to securing a business loan to launch my first financial coaching practice, I’ve seen the good, the bad, and the slightly scary sides of borrowing money. Today, I’m going to walk you through not only the ups and downs of borrowing but also how you can handle it like a pro (with a sprinkle of personal experience!).
Why Borrowing Isn't Always Bad
If you hear the word "debt" and immediately picture red flags waving, I get it! But here’s the truth—borrowing money isn’t inherently bad. When done responsibly, it can open doors you might not have been able to walk through otherwise.
1. Access to Funds for Big Life Goals
I remember the mix of nerves and excitement when I signed my first student loan papers. It felt huge—but without it, I couldn’t have pursued my education. Sure, taking on debt can feel overwhelming, especially when, as revealed by Forbes Advisor, the average federal student loan debt per borrower was $37,056 in late 2023. But here’s the truth—borrowing, when done wisely, can open doors to life-changing opportunities, whether it’s earning a degree, buying a home, or chasing your big dreams.
2. A Sneaky Way to Boost Your Credit Score
Here’s a finance tip I wish someone had told me earlier—borrowing can actually help build a stronger credit score. When I took on my first auto loan, I was determined to make every payment on time. Little did I know, my accountability would give me a shiny credit score boost! By borrowing and paying back responsibly, you build a track record of reliability that future lenders love to see.
Think of it like this—your credit score is like your “trust me” badge for lenders. The higher it is, the better your borrowing terms become. A good credit score also unlocks opportunities like lower interest rates on future loans or higher credit limits.
3. Building Wealth Through Smart Borrowing
One of the smartest borrowing decisions I made was taking out a business loan to open my first financial coaching practice. I knew it was a risk, but I also knew the potential rewards were too good to pass up. Borrowing money to invest in something like real estate or a business can lead to significant “returns on investment” over time. Imagine putting borrowed money toward an asset that grows in value—it’s like planting a financial seed and watching it flourish.
Buzz Bite! Real estate has been one of the most time-tested ways to build wealth. Historically, housing markets bounce back stronger after dips, making it a solid long-term investment.
4. Financing the “Unbuyable”
Ever had a moment where you needed something big—like a reliable car—and didn’t have the funds in hand to pay for it outright? Borrowing lets you bridge that gap. For me, it was buying a car to commute between work and grad school. Sure, I could’ve waited YEARS to save up the cash, but taking out an auto loan got me my car when I needed it most.
Plus, lenders offer flexible repayment terms. Want to pay it off ASAP? Choose shorter repayment terms. Prefer spreading payments out to stay within budget? You can go with a longer term. It’s like a financial DIY—customizable to suit your goals!
The Risks That Can Tag Along
Now, borrowing money isn't 100% sunshine and rainbows. There are risks, especially if you don’t have a solid plan in place. But understanding these risks is the first step to mastering how to manage them.
1. Interest Rates Can Pile Up
One of my early borrowing mistakes was not looking closely at interest rates. A small personal loan I took out years ago ended up costing way more than I expected just because I didn’t do the math on interest. And trust me, those sneaky high rates can make repaying debt a big struggle if you’re not prepared.
A key tip? Always shop around. Compare rates from different lenders or, if possible, try to negotiate better terms (yes, it’s possible!).
Buzz Bite! The average credit card APR in 2023 hovered around 20%. Paying off balances in full each month is the best way to dodge interest charges altogether.
2. The Weight of Overwhelming Debt
Debt isn’t inherently evil, but too much of it can definitely cause sleepless nights. When I was setting up my first office, I underestimated how quickly borrowing too much could snowball. I felt strapped as I juggled paying off credit cards, a business loan, and everyday expenses. That financial overload taught me about the importance of only borrowing what you know you can handle.
A good rule of thumb? Your debt payments shouldn’t exceed 40% of your monthly income. That way, you leave wiggle room for savings and unexpected emergencies.
3. Falling Behind Hurts Your Score
Missing payments on borrowed money isn’t just stressful—it can seriously hurt your credit score. Years ago, I missed a loan payment by one day, and it dinged my score enough to remind me to set auto-pay on everything! Late fees and credit score dips can haunt you for years, so staying organized is key.
4. The Hidden Costs of Borrowing
Borrowing money can come with “extras” (that you often find buried in the fine print). Origination fees, prepayment penalties, and other unexpected charges can add up. When I refinanced my first mortgage, the paperwork alone had fees I wasn’t expecting. Lesson learned—always read the fine print and ask questions!
How to Borrow Smart
Now comes the fun part—how do you borrow like a money-savvy pro while minimizing the risks? These steps can help:
1. Evaluate Your Financial Snapshot
Step one is always understanding where you stand. Before borrowing, I always look at my budget and tally up how much I can afford to repay each month without straining my savings or emergency fund. It’s not glamorous, but it’s effective!
2. Pick the Right Loan
Not all loans are created equal. Whether you need a personal loan, auto loan, or mortgage, consider the terms and shop around. Low-interest rates, flexible terms, and minimal fees are your BFFs when borrowing money.
3. Pay On Time, Every Time
Avoid unnecessary headaches—automate your loan payments. It’s super easy to set up, and it ensures you never miss a due date. Late payments are one of the fastest ways to hurt your credit score and trust me, digging yourself out of that drop isn’t fun.
Buzz Bite! Automating payments can also save on late fees, which collectively cost Americans billions annually!
4. Have a Repayment Plan
I make a repayment plan for every loan I take. It’s not just about making minimum payments—it’s about finding ways to pay off debts faster if possible. Extra payments here and there (on high-interest loans especially) can save you a ton in the long run.
5. Borrow With Purpose
When I borrow now, it’s always tied to a specific goal—whether it’s buying property, funding a vacation I’ve planned for ages, or growing my business further. Borrowing without clear intent? That’s where things can spiral.
Turn Dreams into Reality with the Right Moves!
Here’s the thing about borrowing money—it’s a tool. Like any tool, if you use it right, it can be a game-changer. If you use it recklessly, it can lead to trouble. Just like when I took the leap with my first business loan, borrowing smartly can bring you closer to your dreams.
Practice smart borrowing by weighing the pros and cons, setting a plan, and using loans to improve your financial wellness, not derail it. You’ve got this!
