Borrowing Money has really worked out for him and yielded some solid profits. Borrowing money and using debt as leverage can be an excellent financial strategy. The thing is that many of us are not savvy enough to borrow money and profit off it in the long run. Many young people are guilty of borrowing money today and worrying about the consequences tomorrow. This is why today I wanted to look at what you should consider before borrowing any money at all:

Why are you borrowing this money?

Do you absolutely need to borrow this money? Many times there are two viable options to not borrowing money: delaying the purchase or not making the purchase at all. A new car may seem like a good idea at the moment, but is it really needed? At other times the purchase can also be delayed (home purchase) by a few months or years until you have the sufficient funds needed. Of course you run the risk of losing out on a great bargain. This is why you need to clearly understand why you are borrowing this money.

Will you be able to repay this debt?

How steady is your income? When you’re making lots of money and many great investment opportunities come your way, it’s easy to rack up debt to be used as leverage. The critical question here though is whether or not you’ll be able to sustain this income in the long run and successfully pay off the debt? If you have a stellar plan to repay this debt then by all means go for it. You just need to have a backup plan in case you can’t pay off this debt.

What’s the interest rate?

With an amazing credit score you could potentially find yourself a low interest rate on a loan. In my opinion, the interest rate should be a deal breaker. If your poor credit score constitutes a high interest rate, then the interest paid on borrowing this money could be much more expensive than any profits you might gain. I found you can find good loan options at ToppFinans.com.

What’s your level of risk tolerance?

Can you sleep at night knowing that you’re thousands of dollars in debt? We all have different levels of risk tolerance. Some of us can engage in complex investment strategies and feel perfectly comfortable with everything. Others get nervous just having to make car payments. Before you borrow any money at all it’s important that you assess your own personal risk tolerance to debt.

What type of debt are you acquiring?

I won’t get into the whole good debt vs bad debt argument. That’s another debate for another day. Why you borrow money and how much you borrow should depend on the type of debt that you’re acquiring. You could borrow money to go for your MBA, increase your income by $20,000+ a year and then pay off your debt with your increased income, and feel great with your new position. You could borrow money to buy a new car and then want to switch cars after a few years. There are many different reasons to borrow money (education, car, home, personal, investment, and emergency). The type of debt you acquire should really dictate why you borrow money and how much you borrow.

Have you borrowed money recently? What’s the deciding factor for you when it comes to borrowing money?