Borrowers are increasingly using new loans to pay the old ones. It may seem clever, but this actually creates a problematic pattern, a cycle. And if borrowers can’t break out, it becomes a trap.
Most of the time, a new loan will only create more difficulties than it solves. And if the situation worsens, the borrowers may face legal consequences. If you’re in this situation, you should be aware of the problems of taking out a second loan to just to pay the first one and learn how to manage it. Better yet, you should avoid or break the bad habit of taking on new debt to pay off old debt.
Assess How You Manage Your Finances
If you have already taken a new loan, ask yourself the reason you heavily rely on the debts in the first place. If you never review your financial traits and habits, it’s about time you do.
For example, are you still often tempted by impulsive purchases due to tempting discount offers? If your answer is yes, it’s time to change that. If you already have two loans, and one is used to pay the other, you should no longer be spending on unnecessary things and instead focus on back the loans.
A new loan will not lighten the load of an old loan and your other immediate financial pressures. RIght now, you’re better off saving money and trying to build an emergency fund with cash from your income instead of borrowing more.
Consider the Alternative: Consolidate the Debts
One way you can pay off both loans is to consolidate them. This gives you a more convenient way to pay off both financial obligations. Do note, however, that the longer repayment term will mean more money spent on the loan over time. Nevertheless, it’s still a better option than struggling to pay two loans.
If you’ve decided to go to the best money lender in Singapore you can find to consolidate your old and new debt, you should first create a realistic plan to pay down the new loan.
Increase Your Income
One alternative to taking out a new loan is to increase income. This is especially true for those who feel like their income isn’t enough to cover necessities, utilities, and emergencies, as well as put away money for savings.
There are many ways you can go about this, but the easiest are part-time gigs or freelancing jobs. Getting extra income could help you with your debt repayment. Later on, you can think of bigger, better ways to increase your income, such as starting a business or getting further education to get promoted.
Manage Revolving Credit Better
Revolving credit — credit cards — lack the structure of installment credit such as traditional loans. This makes borrowers prone to impulse buying. If this is the case with you, don’t worry about resorting to drastic measures like cutting off your card, but you need to minimize credit card spending and focus on paying off your new loan. If you manage to consistently reduce your credit card bill, you can focus on paying off your current loan instead of taking out a new one just to pay it.
Conclusion
If you take out a new loan just to pay an old one, you will financially struggle. Instead of doing that, review how you manage your personal finances and do better in areas where improvement is possible, consider increasing your income if it’s on the table, and cut down on how you spend your revolving credit. Being mindful of your decisions when it comes to loans is a must if you want to build financial stability over time. That means not taking out a loan to pay another.
Read More: https://myposthub.net/
