While achieving your financial goals won’t always correspond to precise dates on a calendar, it’s common to use the beginning of each new year as an opportunity to plan major actions relating to your finances and your budget. One big financial step that many people will be taking in 2012 is borrowing money.
You might be considering borrowing money in 2012 for any number of reasons; perhaps to purchase a new home (or refinance your mortgage), to buy a new car, for significant home improvement expenses or perhaps to finance or expand your businesses.
Below are some borrowing advice strategies you should consider before borrowing money in 2012.
- Improve Your Credit Score Before Borrowing. As we all know, much has happened in the credit markets over the past several years. Mortgage rates, including rates on home equity lines of credit, are at near record lows. But keep in mind that lending standards have not eased (and in fact, have actually gotten more stringent as rates have fallen). Before any significant borrowing that you can plan ahead for – such the purchase of a new home or a car – do what you can to improve your credit score. At a minimum, this should include getting copies of your credit report from the various agencies (which you can do once per year free of charge) and verifying that there is no erroneous information that might be negatively impacting your credit score.
- Switch to a Lower Interest Rate Credit Card. Credit card rates have fallen significantly for individuals with good credit scores. In some cases the rates may approach 10%, or even lower for introductory offers or balance transfers. Some borrowers switch to new credit cards (and low introductory rates) quite often, but it can take some attention to make sure you do so properly.
- Consider Refinancing Your Mortgage. If you already have a mortgage on your home, then depending on your current loan terms, and how long you’re planning to remain in that home, you should consider refinancing to a new rate. The longer you plan to stay in your home, and the greater the difference between your current interest rate and a new interest rate, the more you can save by refinancing. Make sure to shop around and compare all the closing costs and other loan fees to make sure you’re getting the best deal.
- Know the 2012 Tax Law Changes. A number of changes are expected for the 2012 tax laws, including increased limits and eligibility for a number of different tax benefits and credits. The net effect is that even if your income remains flat in 2012, you might expect your tax bill to go down assuming there are no other changes to your tax picture. This means that you might have more after-tax money available to service a new loan, or to pay down your existing debt.
If you decide that it makes sense for you to borrow more money in 2012, make sure to do a little work and research beforehand to make sure you’re able to borrow on the best possible terms.