Smart ways to borrow money

1. Know your numbers.

Before applying for credit, know where you stand with lenders. Understanding your credit score and how you can improve your score are great first steps. The higher it is, the better chance you’ll have of being approved and getting favorable terms—which can mean paying less in interest. Another stat worth checking is your debt-to-income ratio. Lenders typically want this comparison of your total debt versus your income to be under 36%. This guideline can also help you keep your debt to manageable levels. By the way: You can get a free copy of your credit report from annualcreditreport.com to check your full credit history and search for any errors. 

2. Differentiate between “good” and “bad” debt.

Typically, financial pros categorize good debt as anything that can help you build wealth in the long run. It could be a loan to buy an appreciating asset—like a house—or an investment in your career via a student loan. Consolidating debt can also be considered a good use of credit since it can help you get out of any existing debt quicker and lower the amount of interest you pay over time. If possible, avoid racking up credit card balances for unnecessary expenses—like luxury vacations or pricey restaurants.

“Ask yourself if you really need what you’re thinking of going into debt for. And make sure you can afford it.” —Brian Ford, head of financial wellness, Truist

3. Stick with lenders you trust.

Getting exciting loan offers from companies you’ve never heard of? Before you borrow money from any lender, you’ll want to do some research. You should expect reputable, trustworthy lenders to be transparent and upfront with you when it comes to the types of loans they offer and the terms that come with them. And if you already have a relationship with the lender—like your current bank or credit union—that relationship may make it easier to tap them for quick advice about the loans they offer and what to expect with the approval process. 

4. Consider consolidating.

If you already have multiple debts, it may be more challenging for you to borrow money. But a debt consolidation loan can help you manage existing debt and potentially access additional funds. Depending on your situation, pulling all your debts together into one new loan could lower your monthly payments, get you a better interest rate, or both. Consolidation loans can also sometimes be used to borrow more than you currently owe, so you can not only pay off existing debts but also cover other needs you may have. For example, Truist LightStream loans ^{Disclosure 1} offer fast, easy financing for many things, including debt consolidation, home improvements, and more. Crunch the numbers yourself—and check with an expert if needed—to get a clear picture of how consolidating could affect your repayment plan, budget, and credit score.

5. Take advantage of promotional offers.

Some credit cards offer low introductory rates, which can be used to consolidate outstanding balances or help you pay for big purchases. Just remember to note when the introductory period expires and try to pay off your full balance before the rate goes up. And always pay at least your minimum payment each month, regardless, to avoid negative impacts on your credit score. 

6. Homeowner? Flex your equity.

Even if you don’t have much credit history, if you’re a homeowner, one of the ways you can borrow money is by using the equity you have in your home to take out a home equity line of credit, known as a HELOC. This can be another way to get the funds you need at an attractive interest rate. Quick tip: To figure out your home equity, subtract the amount you owe on your mortgage(s) from the current value of your home.