In general terms, it is not wise at all to take out a loan to finance debt. This is since you will only be delaying the inevitable and not doing what you set out to do. Also, if this move is not informed, it may end up handing you more debts than you had anticipated. But sometimes life gets people to a point where they are fixed between a hard surface and a rock.
Sometimes you may be tempted by the lowest interest personal loan. If you get yourself in these desperate situations such that you have to pay the hospital bill to access medication or specialized care for a person you are related to or partner or you have collectors breathing hard on your neck. Then you can take out financing for these and many other tricky circumstances that may happen in the course of your life.
Loans you can take up to pay your debt
- Line on credit this works best if you have a home with substantial equity in it. For instance, you cannot take out a loan on a rented property. The property is therefore used as your collateral to secure the loan. The loan proceeds are then used to clear up your debt balances. Apart from paying up your loan, using a secured loan helps you to change a high rate loan to a low rate loan because of a security factor, thereby changing an unsecured debt into a secured loan. However, you should be able to repay this loan early and in the time since defaulting may result in foreclosure or you may be kicked out of your home.
- Peer to peer financing peer to peer lending is fast becoming popular amongst people. The banks and credit unions out of the picture, there are online lending firms that advance loans to individuals at reasonable rates. Also, peer to peer financing gives you the ability to adjust your monthly installments and payment period overtime to suit your convenience.
- Personal loans with consistent deposits in your account, you can be able to take out a personal loan to repay your debt. Personal loans usually don’t have a security requirement. Therefore, you are likely to use a high rate loan to finance another high rate loan. This is not such a good idea, although if necessary, you may take it out in a bid to elongate the loan period. Also, you may land a good lender with lower rates due to a good savings history. Lenders in this industry differ from one to another in terms of rates, terms, etc.
- Life insurance another viable option to debt financing is taking out a loan on your health insurance cover. The cover acts as your security for the loan. The original objective of taking out a health cover is to protect your partner and children, taking out a loan against these funds go against the objective. That is why you should consider all the necessary options before finally deciding on the loan.
- Debt consolidation refers to the act of refinancing your loan. Here, you will put your debts into a common basket that offers a uniform payment option. Usually, while consolidating, you look for a plan which has lower interest and a longer-term than the debt you are financing. loan consolidation helps you to maintain a healthy credit history as well as give you ample time to pay the loan. However, you might get a lender who looks to make money off your shoulders and gives you a deal that might not be convenient for you. Therefore, you out to be vigilant while shopping for a loan where you can consolidate your debts. A good loan is a home equity credit. With this loan, you can take out a loan against your home which has lower rates of interest. This loan is more or less a mortgage on your home, though it can be said to be a second or third. In the end, you are looking forward to a loan that guarantees you lower interest rates over time and has a considerably longer payment period.
- Loan on retirement benefits a public servant is usually eligible for a retirement benefit plan. For private servants, some companies have retirement programs for their staff. If you are a beneficiary, then you can take out a loan against these funds to clear up your debt.
Benefits of paying off your debt
Debts are not only a financial menace but a social one too. This, however, does not limit people from borrowing; statistics indicate that out of 10 people, 8 have taken out debts. Hence the reason why this article addresses the benefits that accrue to a person of a company or a state that pays its debts.
- Better credit index- early debt financing helps you to maintain a good credit index which would guarantee loans with lower rates.
- More savings- clearing loans help you to get into shape with better budgeting and saving. You can put away some money – the money you used to put into loan monthly installments.
- Early retirement- making savings in large volumes in prior years helps you to plan and be able to take another phase in life. You would be able to retire from employment earlier to focus on other activities.
- Less risk- it is bad when you are constantly receiving calls from the collectors, and it is worse when you lose your home or get a foreclosure for being unable to repay your debts.
- Better health, including mental health.
- Better job coming your way etc.
The bottom line
Debts are always necessary for one’s life; financial analysts say that you should not struggle to clear all your debts at once. However, unpaid loan dues may bring lots of problems in the end hence the need to take out loans to cover your debts. You are however advised to try and get a reasonable loan rate so that you avoid getting deeper into debts. Also, scout for a loan with at least a longer-term so that you can settle into payment.