There are good reasons for taking out a personal loan and there are bad reasons to take out a personal loan. These reasons do little to improve your financial situation. When you take out a personal loan, it is imperative to not dig yourself into deeper debt. Debt can enhance feelings of depression, cause relationship issues, and can affect your overall health due to stress and anxiety. If you are taking out a personal loan, make sure you have a good reason to do so. Here are some less than stellar reasons to take out a personal loan.
Spending money on a product that has depreciating value
Assets that appreciate, such as stocks, gold, and real estate are great investments because you can end up making more money off purchasing these assets. What you want to avoid, when spending money from a personal loan is purchasing products that have a depreciating value. A couple examples of assets that depreciate in value are a new car, new furniture, or new clothes. Although these are nice to have and they may make you feel good in the moment, they depreciate in value over time. Do your research on what assets appreciate to enhance your financial situation.
Spending on entertainment such as vacation or dinner
Treating yourself and your family to a nice vacation or dinner is a wonderful idea – if you can afford it. When you take out a personal loan, you are essentially creating another debt. You want this debt to be worth your time. Think about it in terms of how much you must work for what you want to purchase: If you work eight hours a day, and you make $100 a day, is taking out a loan to pay for an additional $100 for entertainment worth it?
Spending on superficial things
Superficial purchases are things you buy to improve the look of something – such as makeup, paint for your new car, or new clothes. Although these purchases can bring you joy in the immediate moment, the debt you would incur can steal those moments of joy in the long run – when you begin to repay the loan with interest. Debt only delays the pain of payment, but as it grows by spending beyond your means, the pain can be excruciating. Spending money like this can form into a habit that is hard to kick.
Remember, personal loans are fixed amounts of money that you must pay back with interest. Interest then makes the product more expensive than its original amount. If you don’t have the means to spend this money in the first place, then you may not have the means to pay to debt with interest involved. By the time payment is due, the immediate joy you felt purchasing these products will have run its course. Although, these purchases are not bad purchases – they are bad ideas if it puts you into more debt. The key to painless spending is to first put in the work. You must budget and save.