While there is a lot of talk about the need for savings, some people choose not to. And not because they couldn’t. Quite simply, they prefer a different money management model. They live from pay to pay, but unexpected situations are solved by getting a loan. On the one hand, the strategy is not that bad. It gives you the freedom to use all the tools at your disposal without having to worry about the worst-case scenarios in your life, which may not even happen. However, although loans are relatively easy these days, they are still not completely substitutable for savings. Why? Here are some of the reasons.
Why credit can’t replace savings?
Saving money will help you feel more secure, even if things don’t work out as expected. For example, if an unforeseen situation breaks your commitment to collect the amount of money needed to realize your plan within a given time frame, it is unlikely to have any far-reaching consequences.
A credit obligation is different – if, for example, a consumer credit is drawn up, the monthly payment must be made within a specified period, in the amount specified in the contract. Of course, another repayment arrangement can be negotiated with the lender if necessary, but this will not relieve you of your obligations.
Outstanding credit liabilities are known to pose a number of problems, ranging from a bad credit history to an ever-increasing amount of debt that can lead to a life disaster.
Credit agreements charge a certain fee for using the loan – so usually the credit company will have to return a larger amount of money than the one borrowed. However, saving does not involve any additional costs –
You can spend more on your savings from your monthly budget.
Although it is easy to apply for a loan these days, it is not granted to everyone in all situations. When evaluating a loan application, lenders consider several factors, such as the borrower’s income level, credit history and age. Loans are granted to residents of the Republic of Latvia with a sufficient level of income and positive credit history.
Each lender also has an age limit within which the loans are issued. The lender’s working hours also need to be taken into account – although the loan application can be completed at any time of the day, it is only considered within the lender’s working hours.
Saving is different – you can get it and spend it whenever you need it. But keep in mind that if a savings account is used to create a savings account, it may take time for the required amount of money to be available. And yet the accumulated money is yours and it will be available to you in full – with a 100% guarantee.
Saving money is psychologically easier
Although many people say that it is their credit obligations that give them more incentive to plan their finances more carefully and avoid spending excessively, it is usually psychologically easier to save money than to pay off a loan, especially if the loan amount is quite large. This is because it is not so easy to change your spending habits suddenly. It is much easier to get accustomed to setting aside even a small amount of money each month, gradually increasing it. In addition, loan repayment can cause more stress.
Although a loan can be useful in a variety of situations, such as when you need cash right away, but savings are not enough, you should definitely not rely on it as a cushion. To better manage your finances and maintain financial stability, it is also wise to think ahead by implementing long-term solutions.