You are still falling behind and a new loan offer comes in. It’s tempting to jump at the chance and take on an additional loan. Just because you can take out additional personal debt doesn’t mean you should. Taking on even more debt without making other changes will likely result in digging ourselves into a deeper hole. Personal loans are the fastest-growing type of consumer debt in the United States. Taking a four-year period, personal loan debt has almost doubled. It has gone from $72 billion in 2015 to $143 billion at the beginning of 2019.
There are many reasons why we may want to take on additional debt. Some make financial sense and some do not. If you are getting a loan to consolidate other debt, pay that debt off and lower your interest rate, that is a wise financial decision. Another reason we may be taking on additional debt are to cover living expenses and not planning on paying off previous debt. In this case, it likely does not make sense to take on that additional loan. Most likely, a loan that falls into this category will carry a high interest rate. Loan companies have sophisticated algorithms and the more people need money, the higher the interest rates will be.
Alternatives to taking on additional debt
If you find yourself frequently taking out loans and not paying off previous ones and your balances continue to mount, it is time to look at alternatives.
The key to solving most problems starts with:
1) Identifying there is a problem.
2) Coming up with metrics to measure progress.
3) Making changes and optimizing the process to improve the metrics.
Create a budget
If we are spending more money on a monthly basis than we are making, there is a problem. We won’t know if that’s the case if we don’t keep a budget. Once we can visualize or monthly income and expenses, we can start identifying areas where expenses can be cut and changes can be made to improve our finances.
Balance Transfer Credit Card
Balance transfers can be a smart move if you are moving credit card debt with a high interest rate to one with a lower interest rate. Some credit card companies offer a 0% APR for a certain length of time (usually 12 to 18 months) so that you can start to pay off debt without paying interest. This option can be problematic if we are still unable to pay off the debt by the time the low interest rate period expires. It is not uncommon for the APR to go sky-high once the initial period expires.
Dedicated Savings Account
In the case where you can delay a purchase and instead save the full cost of the item, that might be a better option than taking on additional debt. An example where this can work nicely is for the purchase of a car.
With some types of debt, like medical bills or utility bills, it may be possible to work out a payment plan with the service provider. In some cases, it may be possible to work out a plan where no interest is charged and the monthly payment is reasonable.
Debt Management Plan
In other circumstances it makes sense to work with companies like American Debt Resolution. We can customize a plan that fits your individual circumstances. Our team of dedicated specialists will work with you and your creditors to negotiate a discount on the amount that is owed in your personal debt. Call one of our specialists today to see if this option is right for your current situation.
Rethink taking on additional debt
In these trying times, more and more folks are resorting to take on additional debt to relieve the stress of debt. This is a temporary solution and a stop gap measure that may not fully address the underlying problem.Before taking on additional debt, explore other alternatives first. Everyone’s circumstances are unique but you may find that other solutions end up being cheaper and less painful in the long run and allow you to finally become debt-free.