We should all admit that people have succeeded using loaned money while others have failed. What makes them succeed when others are failing? There are just few thing we tend to ignore before getting that loan; a good plan.
How to make loans work for you?
One of my friends confessed that once he has money all the good plans disappears till he has no coin left with him. You do not want to be that guy, right? According experts at Investopedia, people can create wealth using debts.
Here are clear steps of how to make a loan actually work for you — not against you:
1. Define the Purpose, Not Just the Amount
Don’t borrow just because you can. Know exactly what the loan will fund: a business expansion, equipment, a course, a car for rideshare work — whatever it is, make sure it's tied to income generation or long-term value.
2. Calculate the Return on Investment (ROI)
Ask: Will this loan help me earn or save more than it costs?
If the answer isn’t a solid yes, think again. For example, taking a $10,000 loan for a program that helps you earn $30,000 more over two years makes sense. Buying a depreciating item with no payoff? Not so much.
3. Shop for the Best Terms
Don't just go with the first offer. Compare:
- Interest rates (fixed vs. variable)
- Repayment period
- Fees (hidden ones too)
- Prepayment penalties
- A lower interest rate or longer term could make or break your cash flow.
4. Build a Realistic Repayment Plan
Know your monthly payment before signing. Budget for it. Pretend you already have to make that payment for a couple of months—if you can’t do it comfortably, rethink the loan.
5. Use the Money Strategically
Don’t burn through the loan without a plan. Prioritize high-impact uses that deliver measurable value. Avoid using loan funds on things that won’t produce a return or move you closer to your goal.
6. Automate and Track Repayments
Set up autopay to stay consistent. Monitor your balance. If you can, make extra payments to reduce interest—but only if your loan doesn’t penalize prepayments.
7. Improve Your Credit Along the Way
Responsible loan management can boost your credit score. That means better terms for future funding. Pay on time, keep your debt load manageable, and don’t max out other credit.
8. Evaluate the Outcome
Once you’ve repaid the loan (or are nearing the end), assess:
- Did it help you grow?
- Was it worth the cost?
- What would you do differently next time?
The bad reasons people get loans for
Here are some bad reasons to get a loan — the kind that usually lead to more stress, not success:
1. To Fund a Lifestyle You Can’t Afford
Vacations, luxury items, parties, designer goods — if it’s not essential or income-generating, don’t borrow for it. Debt should build you up, not just help you keep up appearances.
2. To Cover Everyday Expenses (Long-Term)
Using loans to pay rent, groceries, or bills month after month means your income isn’t matching your lifestyle. That’s a budgeting issue, not a loan fix — and it can trap you in a cycle of debt.
3. To Pay Off Other Debt Without a Plan
Debt consolidation can be smart if it lowers interest and you stick to a payoff strategy. But taking one loan to pay off another, over and over, is just reshuffling a problem, not solving it.
4. To Start a Business Without a Plan
Starting a business is risky enough. Taking out a loan without a clear business model, projections, or strategy is like jumping without a parachute. Hope is not a business plan.
5. Because You Can, Not Because You Should
Pre-approved offers or fast online lenders make it easy to borrow impulsively. But just because money is available doesn’t mean it’s wise to take it. Every loan is a commitment — treat it like one.
6. To Invest in Risky Schemes or “Quick Rich” Promises
Crypto hype, sketchy startups, or someone promising 5x returns in a month? If it sounds too good to be true, it is. Don’t borrow money to gamble — you might lose both the investment and owe the loan.
7. To Bail Out Someone Else
Helping family or friends is admirable, but taking on debt for someone else's problems can wreck your finances and your relationship. If you must help, use cash you can afford to lose.
Summary
To make your borrowing valuable, your loan application should only come after financial plan. No need to be impulsive about it because loans can sometimes bring financial trouble when not planned wisely. However with good plan loans can create wealth.
