With surmounting interest rates, economic uncertainty and strict lending criteria, many people wonder whether borrowing money is still a good idea.

If you have a bad credit, maybe you are having second thoughts about signing up for a personal loan, line of credit or credit card. Sadly, there are things that can’t wait—like health emergencies, frequent collection reminders from creditors and other urgent needs.

Here are very important things to keep in mind before you sign away your future paycheck to lending institutions.

1) Necessity of spending money

Do you really need to spend money or you simply want to spend it?

Impulsive buyers often end up in debt because they immediately decide to buy an item without letting the idea sit for a few days. The truth is that, no matter how keen you are in buying an item, you cannot trust your judgment at all times. If you borrow money without even considering whether it is practical and affordable, you may regret your decision in the end. It might be better if you put if off or avoid making the purchase at all.

You may want to focus on borrowing money. But, why don’t you step out from your situation and ask the questions about the necessity and practicality of taking out a loan to meet the need. Assess your needs from an outsider’s point of you. If you are to advice a person in a similar situation as yours, would you highly recommend borrowing?

2) Alternatives to borrowing

Could you wait until you can afford to meet the need without getting into debt?

When you realize that you need something it might be very useful to ask yourself first if there is another way for you to get it.

Here are some alternatives to borrowing:

  • Save money. You can use your savings instead of getting additional debt. And, if you decide that you can wait for a little while, you might want to seriously consider saving money each month until you have enough to buy the item or pay for an event you want. If you don’t want to pay 0% interest on a credit card deal, just wait and save up for a purchase instead of using your credit card. Aside from the fact that you won’t have to pay interest, you can also relish the fact that you are able to pay the item in cash.
  • Wait for discounts and promos. Are you rooting for the latest gadget or shoes? Wait until the price has been reduced either because there are new inventories coming, or a better model is out there. You might just have to pay a fraction of its original price, minus the hassles of paying interests and credit charges.

How would I know if I should heed to the lender right away or to wait until I can afford it?

Example 1 – Vela is a store clerk who commutes to work every day. She gets a part time job at a coffee shop near her home every night. She wants to buy a new car but doesn’t have enough savings to cover the cost. Should Vela apply for a loan? Or should she wait until she can afford to purchase it in cash?

This is bad borrowing because getting a car would not give her any financial benefit.

Example 2 – Alexa is a nurse who travels to work by bus each day. She gets a better job offer with higher pay and better employment benefits at new hospital in New South Wales, but there is no available public transport to take her there on time. Her only option is to rent a new apartment which may cost her a huge sum of money. She wants to buy a car to but doesn’t have savings to purchase it so she decides to apply for a personal loan.

This is good borrowing because the new job would pay her more money than her current one. She can also get back the cost of the borrowed money, the car’s purchase price and still have more for her other needs.

3) Capacity to repay the loan

If you want to borrow money, make sure you can repay it.

It doesn’t really mean that you can clear your credit card bills in full every month. Making the minimum repayments on your credit card bill will do. It’s very important to work out how much you can manage to pay for each month, on top of your current bills and daily needs.

Be realistic about how much you could pay if your pay was cut, or when you get sick and other circumstances that might affect your capacity to repay your loan. Most of all, when borrowing money it is important to check which borrowing option is best for you considering your current income, total cost of the loan and your current needs.