Thinking of taking a new loan to settle old debts? Keep these things in mind

We often have to take loans to fulfill our needs. Many times we borrow from acquaintances or have to take a loan from a bank or any other financial institution. Some people also take more than one loan out of compulsion.

In such a situation, sometimes the thought comes to mind whether it would be better to settle all the old debts by taking a new loan. Let’s know the answer to this.

Is it right to take a new loan to repay the debt?

Taking a new loan to repay the old debt is right only in certain circumstances. Like you have spent more money on the credit card and have to pay 30 percent interest on it after the due date. To repay this, you can take a personal loan, whose interest rate will be around 15 percent. Always keep in mind that take a new loan to repay the old loan only when the interest rate of the new loan is less than the old loan.

Disadvantages of taking a new loan to repay the debt

• You can get trapped in a never-ending trap of debt. You will always need to take another loan to repay one.
• If the new loan is expensive, your trouble will increase, as will your debt burden. This can put your financial stability at risk.
• A fresh personal loan also comes with additional charges like origination fees, prepayment penalty. This can increase the burden of your loan amount.
• If you take loans repeatedly, it can also spoil your credit score. Then it may be difficult for you to take loans in the future.
• If you take a fresh loan and delay its repayment, there is a high possibility that your credit score will go negative.

You can implement these measures

• You can combine all your loans into a single loan. If you get the facility to pay it at a lower interest rate, it will be even better for you.
• You can manage your budget in a better way. You can save more money to repay the loan by reducing your expenses.
• You can also talk to your lender. If they can offer loan waiver or any concessions, it will be better for you.
• You can also consult a professional debt counsellor. This can help you make a better plan to repay your debt.