Is Taking a New Loan to Pay Off Existing Debt Beneficial?

A loan is a popular and convenient financial tool. Borrowed funds can be used for purchases or to pay for services. Often, borrowers who initially take out one loan end up taking several more, placing themselves under heavy financial obligations. Soon, they struggle with the financial burden, and refinancing may become a solution to their problem.

Is it advisable to take out a new loan to pay off an old one?

Many citizens today have credit obligations. The level of debt burden increases every year. Taking out another new loan to pay off existing obligations may seem unwise. However, in certain cases, this option can help individuals escape from a debt trap. Some banks offer refinancing services that allow for:

– Lowering the interest rate;
– Extending the loan term;
– Obtaining a larger sum of money.

Before taking out a new loan, it is important to review the offers and terms of lending from each bank to determine whether this option will be beneficial.

Where to Obtain Funds for Repaying an Existing Loan

In the event of a difficult financial situation and an inability to meet debt obligations on current loans, there are several effective options that can help resolve such a situation:

1. Consumer Loan.
By obtaining a non-targeted (consumer) loan, the borrower can use the funds to repay current obligations. However, it is highly likely that a client with a significant debt burden may be denied a loan by the bank.

2. Debt Refinancing.
Many banks offer refinancing services—where the borrower takes out a new loan to pay off an old one, but under different credit terms. This is a good option to fulfill debt obligations completely or at least partially.

3. Credit Card Issuance.
Almost any working citizen can obtain a credit card. The amount credited to their card account can be used for any purpose, including repaying debts.

4. Microloan.
By turning to a microfinance organization, a borrower can obtain a microcredit that provides funds until payday. Some organizations offer interest-free loans to new clients, with the main condition being repayment of the debt within the specified timeframe. Failure to do so may lead to issues when applying for future microloans.

The most advantageous option for obtaining funds to repay debts is to borrow money from relatives or friends. In such cases, it is usually not required to pay interest when returning the amount. For those borrowers who do not have this option, debt refinancing may be the way out of the situation.