Tips for Using the Loan to Pay Past Debts

Getting a loan to pay off debt can be a great option to catch up on bills. This measure, however, deserves considerable consideration.

After all, a loan is a new debt. If this debt is not well managed, it will be the source of new financial problems. Perhaps, then, you are asking yourself, “when is it worth taking a loan to pay off debt?” Or “loan, is it worth it?” The answer is not a tricky one: when the new debt is cheaper than the old!

It is also interesting to choose the loan to pay off debts when it refers to the overdraft. Same for the need for the consumer to clear his name quickly.

This can occur, for example, when renting a property, or obtaining a mortgage. Those with the “dirty name” tend to find it more difficult to pass financial transactions.

Analyze Your Debts

Analyze Your Debts

As already mentioned, it is essential to get a cheaper debt than the previous one. Otherwise, the measure will not be worth it. That is why:

  • Analyze each of your debts in the square;
  • Check if it is possible to pay more than one;
  • Ask the bank for all the values;
  • In case the financial company is afraid, make it clear that the loan is meant to exactly clear your name and catch up.

When getting a loan to pay off debts, it is worth repaying multiple debts at once.

Evaluate the entire cost of the loan

When seeking a loan, you need to look at other amounts than interest. This is because each debt has other associated fees. When summed, the values ​​form the Total Effective Cost (CET).

There are situations where the interest on a trade is low, but your CET is high. If this is the case, for a debt with a CET higher than the first, it is not worth getting new values.

Don’t assume more than you can afford

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For experts, the ideal is to assume debts that correspond to a maximum of 30% of your fixed monthly income. This summing up all card debts, financing or loans.

Therefore, it is crucial to consider this aspect when obtaining the loan. If it is not planned properly, the consumer can only “exchange his problem for another”.