Do not borrow money to pay off a debt! Loan Consolidation
Do not pay debts with a loan
Borrowing money to pay off debts is not wise, because in the end the costs can be even higher and the financial problems can get bigger. Closing one hole with the other is not a good idea if you have to take out a new loan. Borrowing money to pay off debts is by definition not wise. If debts exist and a loan is taken out, a new debt is created. The old debts may be paid, but a new loan is stuck for a long time. When borrowing money to pay off debts, there must be room for basic repayment of the new loan.
Do not take out a loan for debts
If debts cannot be paid, this means that there is no financial room every month to meet the payment obligation. When taking out a loan, a new payment obligation is entered into. The debts can then be paid off with the amount of the new loan, but there is still no financial room available to be able to meet the repayment obligation again.
If there is money left over to pay off the debts, then there is no need to take out a loan.
In the event of multiple debts, it is wiser to contact the creditors to arrive at a payment arrangement. This also prevents the costs of the debts from rising further. Financial space can be created by listing all income and expenditure and deleting what is not really necessary. That is better than paying off debts with a new loan. Debts, incidentally, are a general concept that relates, among other things, to payment arrears on the fixed monthly charges, but also to loans contracted earlier. In both situations, borrowing money to pay off debts is not wise.
Take out a loan for debts
Borrowing money to pay off debts is therefore not wise, but there are of course always situations in which taking out a loan is currently seen as the only way out. It is not recommended to take out a loan for debts, but if that advice is put aside and the choice is made to take out a loan, then it is better to take a number of points into account. Debts related to previous loans can be included in one new loan. This is called refinancing, but often entails additional costs due to fines for early repayment of the existing loans. Borrowing money to pay off debts should not be done in a panicky moment.
Whoever wants to take out a loan to pay off debts must compare the options. Pay attention to the interest, the type of loan and the term so as not to lose too much unnecessary money.