Should you Get Personal Loan to Pay off Debt?
Is it a good idea to take out a loan to pay off a previous debt? Answer is NO.
Personal loan is of one-time use and should not be considered as a source of income, as they are not. You will always have to pay back the loan you apply for under certain conditions. In addition, not only will you have to repay the borrowed money, but you will also have to pay various fees interest, late payments in case of delay, etc.
This can tighten your belt enough to take on more payments. For this reason, the decision to finance the payment of a debt should be carefully considered.
In this article we study the options you have to pay debts without having to resort to extreme measures such as ending up with greater debt.
When to consider taking loan to pay off debt?
You will only be interested in taking out another loan, if paying off the outstanding debt gives you more advantages than the difficulties of paying the new installments.
For example, imagine you have to pay two installments of $500 in the next two months, but you have the option of financing it with a $1000 loan to pay off early. If this new loan has a low monthly payment, say $100 excluding fees, then you may be interested.
But keep in mind, this situation is very specific. In general, you won’t find yourself in such a situation. Although switching to a lower debt will provide more comfort in the following months, but as you can see in the example above, you will be paying off the new loan for at least half a year. Would you prefer to pay two larger installments or several smaller ones?
Is Option A or Option B right for you?
These questions must be answered by you depending on your financial condition. Debt repayment loans won’t solve your long-term problems because you’ll always have to pay new fees. If you choose option B, you will always have to pay more money in the coming months.
Other Options to Pay off Debts
There is another option to have more margin in the repayment: debt consolidation.
This procedure consists of formalizing a new agreement with the entities that charge you money monthly through a financial entity that mediates the process. The agreement consists of increasing the repayment term in exchange for paying lower installments.
While this is an interesting alternative to personal loans to pay debt, it is not suitable for all customers. Consolidation may involve a loan similar to a mortgage. Therefore, you will have to demonstrate stability and minimum income. In addition, your current indebtedness will have to be under certain limits in order for it to be an acceptable risk to grant you the new conditions. Keep in mind that the entities involved will have to reach this agreement and the conditions they impose must be met.
Another alternative to bank debt repayment loan is debt refinancing. Check with your lender about your options for paying debt. You may be offered some ease of payment whenever possible. Of course, the first step is to check with your current entity because they are the main stakeholders in your ability to make timely payments.
Create additional income sources
Instead of resorting to personal loans to pay off debts, you should learn about alternatives to improve your personal income.
Let’s look at some trusted options for generating extra income.
A very profitable alternative today. Many individuals or businesses are looking for someone to help them with certain tasks that they cannot do personally. In addition, they pay in USD or Euro. You can benefit from currency exchange. That is, if you are sitting in India and earning in USD then currency exchange will earn more money.
These are some of the most demanded activities:
- Writing articles
- Creation of web content
- Web Development
- Data analysis
A viable option is always to look for a job that is in addition to the existing one. There are temporary, part-time or substitute options.
You can generate income by trading in products that you can buy at a low price and resell for a higher amount. The options are endless and depend on your dedication.
The best way to pay debts is to have the capital to pay them off. However, if you do not have any savings or the possibility of having money on a regular basis, it will be more difficult for you to pay the outstanding amount. You should avoid borrowing to pay off debts, as you will get on a tightrope by increasing your indebtedness. There are unscrupulous entities that grant money to people with debts with prohibitive conditions.
Do not make visceral decisions under stress or without consulting someone. Talk to someone close to you or a professional, such as your financial advisor, before making such a decision that will burden your personal finances for months or years to come.
You’d better work on another front: Increase your monthly income with proven techniques. Practice or learn about diversification, freelancing and other money-earning alternatives.
Debt cancellation loans often do not provide solution. It is best to try to get rid of the fees you have outstanding on your own to get out of the compromised situation in your personal finances.
When it comes to finances, it’s always a good idea to be informed so you can make safe decisions.