Scenario: One more loan?
Test your judgment. Given Elena’s situation, which decision do you think is best for her?
Elena just completed a 2-year technical training program. She’s off to a successful start working as an independent contractor, paying off her student loan and a second loan to buy a van. She just landed a project that requires specialized equipment. She planned to rent the equipment, but the vendor has offered her a good deal to buy it instead. She’d need a 3-year loan to buy it, but she could use the equipment on future jobs, too.
The consequences of your choice
See the consequences of this choice for Elena and hear what your guide has to say.
“I’m so glad I didn’t borrow more money. Even though I’m getting a lot of work, my expenses are higher than I thought they would be. If I had borrowed more money, it may have been tough to repay my other loans. To maintain a good credit history I’ve got to pay all my bills on time. Otherwise I’ll lose money in late fees and my credit rating will go down.”
Great decision! Elena was smart to make sure she could handle her new monthly expenses before taking on more debt. By renting the equipment for now, she can handle the project and earn money without taking on more risk.
The consequences of your choice
See the consequences of this choice for Elena and hear what your guide has to say.
“What was I thinking? Between my new loan payments and other expenses, borrowing more money was probably the last thing I should’ve done! If I don’t pay my bills on time, I’ll have to pay late fees on top of everything. And my credit rating might go down. I can sell the equipment to repay the loan, but that might take some time.”
Sorry … with all her new expenses, this wasn’t a good time for Elena to take on more debt. Even if she’s able to sell the equipment, now it won’t be worth as much used as she paid for it new. If she can’t make her loan payments, she should call her lender immediately to discuss what to do.
The consequences of your choice
See the consequences of this choice for Elena and hear what your guide has to say.
“I thought I could handle this equipment loan, but I was wrong. What I didn’t figure in were all the extra costs of running the equipment, including an hourly helper. Now I’m struggling to pay my bills on time and cutting back on things I don’t want to. The loan is for three years, but the technology will probably be outdated by next year. I wish I’d waited before borrowing more to buy now.”
Elena was smart to analyze her current budget, but forgot to consider the additional expenses the new equipment might bring. And by the time she pays off the loan, this equipment may be outdated. Avoiding more debt would have been a smarter choice for now.
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Remember: If you’re having trouble making loan payments, contact your lender immediately to discuss your situation and how you can work with them to repay.