Nearly 70% of Americans say borrowing money has improved their finances. See how to avoid financial pitfalls. – Forbes Consultant

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Money does not grow on trees, unfortunately, and sometimes you need to borrow money in one bite for a cash injection. Even before the pandemic, Americans borrowed money to bridge the pay gap, cover unexpected expenses, or finance larger purchases such as home improvement projects or cars.

A recent Forbes Advisor survey found that many Americans who borrowed money had more financial benefits in the long run. In the survey, 69% of those who have borrowed money in the past said that it made their financial situation better compared to 6% who said that it made their situation worse. Those whose finances have benefited from borrowing money have probably followed responsible practices to avoid pitfalls.

Lending money in America

Only a small percentage of Americans prefer not to borrow or have never borrowed money. Of these, 8% prefer to use personal savings while 19% have never borrowed money. Among Americans who are open to borrowing money, personal loans and credit cards are the most common methods.

It is much easier to avoid financial pitfalls if you use personal savings or an emergency fund and therefore avoid borrowing money altogether. But for some, borrowing money is a necessity, especially for unexpected expenses. Whether you are borrowing money through a loan, credit card, credit line or friends and relatives, it is important to ensure that you can afford the monthly payment obligation. This will help you to use the money more efficiently and keep your finances in shape throughout the process.

One way to reduce your monthly payment is through lower interest rates. Because your credit score is a key factor in determining your interest rate, it is in your best interest to improve your credit score before borrowing money. The lowest interest rates are usually for people with good to excellent credit (FICO rating at least 670). Less than half of Americans fall into this range.

Not only is improving your chances of getting a lower interest rate an easy way to avoid financial pitfalls, but Americans say lower interest rates and commissions are more important when you want to borrow money. In second and third place are the high loan amounts and the long repayment terms, respectively.

Money Lending Improved financial statements

Borrowing money does not always have a negative impact on your financial situation. In fact, 69% of Americans say borrowing money has improved their financial situation.

Although more than half of Americans said their financial situation had improved by borrowing money, 6% of Americans said their situation had worsened. Financial situations usually deteriorate due to unexpected difficulties or due to non-compliance with responsible debt practices. To avoid financial pitfalls when borrowing money, we recommend:

  • Pay your bills on time or early to avoid damaging your credit score
  • Borrow below your means and within your budget
  • Take the time to find the lowest interest rates and commissions to reduce your overall borrowing costs
  • Improve your credit score or apply with a co-signer to increase your chances of getting the most favorable terms
  • Do not overspend if you use a credit card or credit line
  • Set up automatic payments so you never lose a payment
  • Keep track of your monthly statements
  • Consolidate high interest rate debt into an improved payment

These responsible practices are essential for both current borrowers and the 73% of Americans planning to borrow money in 2022.

Whether you plan to borrow money in 2022 or not, you may have similar concerns to other Americans. The most common lending concerns are higher debt creation (30%), interest costs (36%) and the negative impact it can have on credit (22%).

If you are preparing to borrow money or expect to do so at some point in the future, follow these general tips to help you address each of the above concerns:

  • Borrow only what you know you can afford to repay. Before borrowing money, analyze your budget and calculate your possible monthly payments. We recommend that you only borrow money that you know you can afford to repay on time to avoid creating more debt for yourself that you can not repay.
  • Improve your credit score before you apply. Because your credit score is a key factor in determining your loan interest rate, it is important to improve your credit score, if necessary, before applying. A rating of at least 670 will improve your chances of getting lower interest rates. However, a score of at least 720 can help you secure the lowest possible prices.
  • Consider low interest rate personal loans. Improving your credit score is not the only way to reduce interest costs. You can also consider personal low interest rate loans. While some providers offer interest rates of up to 3%, the lower interest rates are for highly qualified prospective borrowers.
  • Pay on time or early. Although applying for a loan or credit card can have a temporary negative impact on your credit due to strict credit control, you can help your credit by paying on time or early. Your payment history is one of the most important factors in your credit score and accounts for 35% of your FICO score. Improving your payment history has a positive impact on your credit.
  • Investigate customer reviews. Before borrowing money, look for your preferred lender or bank on rating sites such as Trustpilot and the Better Business Bureau (BBB). Here you can find red flags and read customer reviews to detect and avoid potential scams.

Personal loans are among the most popular lending methods

Twenty-six percent of Americans prefer to use personal loans when borrowing money, making it the most popular method of lending beyond credit cards, equity loans or credit limits, friends or family and personal savings. In addition, only 20% of Americans are unaware that they can use personal loans to borrow money.

Related: Best personal loans

Although 80% of Americans are aware of personal loans, this does not mean that they have used them as a lending option. In fact, 60% of Americans say they have borrowed money through a personal loan. The remaining 40% is either borrowed by another method or no money is borrowed.

If you are considering getting a personal loan, we recommend that you find a lender who offers a pre-selection process. It is beneficial to qualify with many personal loan providers. The default requires only a mild credit check, which has no effect on your credit score and lets you see what conditions you can qualify for when applying. This process allows you to compare personal loans and find the best deal available for your specific needs.

The default with many lenders, as 67% of Americans have done, could be the difference between one loan and one that improves or worsens your finances.

Research methodology

This online survey of 2,000 adults in the United States was commissioned by Forbes Advisor and conducted by market research firm OnePoll, according to the Code of Conduct for the Market Research Company. Data were collected between 23 and 24 March 2022. The margin of error is +/- 2.2 points with 95% confidence. This research was commissioned by the research team OnePoll, which is a member of MRS and is affiliated with the American Association for Public Opinion Research (AAPOR). For a complete survey methodology, including geographic and demographic sample sizes, contact

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