For most people, debt problems become even more prominent after the
holidays, when people with lingering debts turn to debt consolidation by
taking out personal loans. In some situations a personal loan can be a
solution as it allows you to consolidate all your debt into one, easily
manageable payment, providing a straight-forward way to manage debts.
The question we need to ask ourselves, however, is whether taking out a
personal loan is actually necessary to eliminate your debt.
Personal loan for debt consolidation
For those trying to get out of debt, a personal loan can be a solution.
When these types of loans are used appropriately, they can provide a
way to pay off high-interest credit card debt for instance. If they are
not used appropriately, however, they can put you on the fast track to
further debt and cause lower credit ratings as a result. It is important
for people to keep focusing on their objectives when they take out a
personal loan:
Responsible money management is key
Creating future plans means drafting a plan of action to help you avoid
debt in the future. What can make taking out a personal loan turn into a
debt disaster is when people are irresponsible with the money they
borrowed. Some people consolidate their debts into a more workable and
affordable alternative, but then they somehow manage to acquire even
more debt, which completely defeats the objective of the consolidation
loan, creating a situation where they slide even further in the debt
trap.
Be realistic and look past the convenience factor
When you look at it realistically, using a personal loan for debt
consolidation actually means ‘stealing from Susan to pay Jane’, or in
other words, you are basically transferring your debts from one place to
another without in fact making a lot of progress. Yes, one loan
repayment means that there are fewer bills to pay every month, but it
does by no means mean that it is the ideal way to become debt-free.
Before you take out that personal loan
Find creative ways to tighten your budget and reduce your spending, and
try to get rid of your debt in alternative ways before resorting to
taking out a personal loan. Sometimes, all it takes to get on the right
track is tweaking your spending habits. Also take the interest rates
into consideration, especially when you are taking out a personal loan
to consolidate your debts, banks will know that you are not exactly the
ideal borrower and increase their interest rates to minimise risk.
Other alternatives
Sometimes, speaking to your bank about credit card arrangements can
literally pay off. You could, for instance, try to negotiate a lower
interest rate for a couple of months so that you can ‘buy’ some time to
increase your income. You could also opt for re-financing your vehicle
or apply for an access bond.
Conclusion
Debt consolidation loans can help you reduce your number of debts, but
remember that it is not an ideal solution. First, consider alternative
options in terms of curbing your expenses, or find ways to create
additional income. If you do end up deciding to get a consolidation
loan, make sure you make regular payments and work these amounts in your
monthly budget.
