Struggling with Juggling?

Most people take a new loan to repay their existing loan(s). It may sound like a good idea as it gives a temporary relief. However, it is not the right solution for a long run. It is definitely not a wise idea to juggle between loans. There are various reasons behind saying that it is not smart to take out a loan to pay off debt.

1. Debt still exists

Taking another loan to repay an existing loan means that you are not getting rid of the debt, but only the lender. The debt is getting transferred from one lender to another. The name of the lender changes, however the effect remains the same. You continue to owe money to someone; you continue to pay EMI and you continue to pay interest — all of these are not ideal.

2. Becomes a habit

Once you start taking a loan to repay another loan, it gives lot of courage to handle loans. Slowly, it becomes a habit to take loan after loan. You will never hesitate to take a loan to handle your crisis situations or even a normal situation. This habit will lead you to a vicious circle wherein one problem leading to another problem

If taking another loan to repay my existing loan is not smart, then what should I do to solve my debt problems?

The next natural question might be – If taking another loan to repay my existing loan is not smart, then what should I do to solve my debt problems? If you have multiple debts and struggling to manage the repayment within your income, then consider following the below steps.

1. Write down all your debts:

Take a piece of paper and write down all your debts. Include even the smallest loans that you may have. Capture all the details about the loan like loan amount, number of total EMIs, interest rate, number of EMIs paid and outstanding, principal amount outstanding, type of loan (personal loan, credit card etc.,).

2. Evaluate your EMIs

By completing step 1 above, you now have a complete picture about all the debts that you have. This will also show you the exact amount required every month to pay all of your EMIs.

3. Act

Bash your total EMI with your total monthly income and see if it is enough to repay all your EMIs plus meet your monthly essential expenses. If it is, then well and good. You are in a better position. All you have to do is to continue to pay your EMIs and not take any further loan. Over a period of time, you would have paid all of your debts and become debt free.

If in case you do not have enough income to meet your EMI plus monthly expenses, then you have a real challenge. You need to find out ways to increase your income so that you bridge the gap. That may not happen immediately, so the problem exists.

Debt Consolidation loans helps one to stop struggling with juggling between multiple loans

In such scenarios of multiple loans, and you are struggling to repay them with your income as it is not enough, do not juggle between the loans. There might be always a confusion about which loan to repay first? Rather go for a debt consolidation loan. This type of loan gives you refinancing option to combine all of your unsecured loans into a single EMI. The advantage is that you need not remember multiple due dates and be stressed throughout the month. You need to remember only one due date and spend the rest of your time & energy in focusing on your work. More time and focus on your work or business will help to increase your income. Increase in income levels would, in turn, help you to close the loans quicker and become debt free sooner.

Before taking a debt consolidation loan:

  1. Ensure that the interest rates for the debt consolidation loan is lower than your existing loans. Only then your new EMI will be lesser than the existing EMI and you will get some relief. Else, there is no point in going for a consolidation loan. Be clear with this.
  2. Be determined to adhere to the new loan schedule without defaulting. Only then you would be able to clear off your debts and avoid the defaulter label.
  3. Check if the lender has pre-payment options without any charges. This will allow you to prepay your loan as and when you have excess cash in hand without paying any additional charges. Prepaying is one wonderful way to close the loans faster and become debt free at the earliest.

After taking a debt consolidation loan:

  1. Ensure regular repayments till you pay off your debt. Only then you would become debt free
  2. Do not take advantage of the little freedom that you may get and start impulsive spending for things that you do not need. Get more clarity around your wants and needs.
  3. Do not take new loans once you obtain a debt consolidation loan. Buying new loans during the repayment time will push you back to the vicious circle of debt.

Over a period of time, you would have paid all the EMIs and you will start leading a Zero EMI life. The smartness lies in leading a life without loans and not in juggling the loans. Good luck!

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