Is it worth taking a loan to pay off debts?

Is taking a loan worth it? For the answer is: it depends. But how so? It is simple, there are different types of loan in the market. There are payroll loans, personal loans, financing, loans for negatives, overdraft, credit card, among others, and each has a different condition.

Also, among the loan types there are different rates, repayment terms. And among the debts, well, each one has a certain condition as well.

 

When is it worth taking a loan to pay off debt?

When is it worth taking a loan to pay off debt?

Quite simply, the debt repayment loan is worth it whenever you have a large debt and you will exchange it for a small one. Also, it can be a good option for consolidating various debts.

But there are also situations where taking a loan is not the best solution. This is usually the case of those who have a negative name, after all the loan in this situation is usually accompanied by a high interest rate. That is, taking a loan when it is negative can make your debts even bigger.

But then, when is it worthwhile to exchange a debt for a loan? Let’s answer case by case.

 

Credit card

If you are on a revolving credit card, surely taking out a personal, payroll or secured loan will be a better alternative. This is because in these loans the interest rates are much lower than those charged on the credit card.

 

Overdraft

Credit card

Here we have another expensive debt. Unless your bank offers you a few free days on overdraft, as is the case with some, if you have entered this debt it is good to run. Replacing this credit for a cheaper one is easy considering the interest on overdraft is very high.

 

Consumer Accounts

Unless your consumer accounts are about to cut down on services or negate your name, the rates on these debts are generally not as high. It may be the case that you renegotiate debt directly with the company and try to pull funds from other means you have.

If you have no way, personal loan or payroll loan can help you in this case. In any case, the minimum amount you can borrow will be much higher than the debt you have.

 

Financing

Consumer Accounts

Do you have a loan and are you in late installments? The first step is to seek the lender to renegotiate the debt, as failure to pay can lead to the loss of the asset. If your loan rate is too high, you can look for the best credit options on the market and thus pay the loan cheaper.

 

Account Anticipation

When you anticipate the repayment of financing, for example, you recalculate the interest to be paid, resulting in a discount. But is it worth taking a loan to do this? Well, probably not. This is because the discount may be less than the Total Effective Cost you will pay on the new loan.

However, if you are anticipating repayment of an expensive debt, that is, with high interest, it may be a good idea.

 

Shopping

Unless you are negotiating an excellent offer, borrowing to make a purchase can be expensive. When deciding whether or not it is worth doing, consider what you need to buy right now and how much you will pay in full with the interest on the credit transaction.

Of course there are instances when the loan can be a good solution to buy. This is because not every company offers interest-free installment sales and, in these cases, credit card installments would be more expensive than other types of loans.

 

Other debts

Whenever you want to know whether or not it is worthwhile to exchange a debt for a loan, you should consider what is the Total Effective Cost of your current debt and how much credit will be taken. In addition, if you decide to take out a loan, you should always compare CET from different companies, as each institution works with its own credit analysis.