If there’s one thing that almost anyone is concerned about at some point in their lives, it’s money. No matter how hard you work and how good you are with handling money, you still most likely will suffer from financial straits, one way or another. It doesn’t necessarily mean you’re reckless or careless with your earnings, but it just happens that people hit these roadblocks, and the economy certainly isn’t helping.
The question then becomes: how do you get out of your financial crisis? Some people believe the best way out is through getting a loan, but can that really solve anything? In this article, we’ll try to answer some of these questions.
Delaying the inevitable
Can you take out a loan to get out of your debt and solve your financial problem? To an extent, yes, but that doesn’t always mean you should. And if you think about it, you won’t really have gotten out of debt, because now you will have the loan installments to pay off. True, they might have a lower interest rate, and it might help if you consolidate all your different debts into one, but that’s not necessarily the right course of action.
Getting another loan is a short-term solution that will not solve all your problems, not unless you get to the bottom of why you keep getting into debt. You need to find out why exactly is it that you keep getting into trouble with money because if you don’t, you’ll just keep getting one loan after the other until you can’t do it any longer.
What are your loan options?
Assuming you have it all figured out, and obtaining a loan is your only way to fix your financial problems, then you need to start considering your loan options. There are quite a few different avenues that you can explore, but not all are going to be equally easy.
Friends and family
This should always be your first choice, because who likes dealing with banks? Your friends and family most likely won’t charge you any interest rates, and even if they do, they will be less than a bank would. But in any case, just because they’re people you know, that doesn’t mean you should slack off and fall behind with your payments.
The last thing you want to do is to let your financial problems affect your personal relationships as well. So, never approach friends and family for money unless you’re certain you can pay it back within a specific time frame.
Home equity loans
While not the wisest thing to do, you can always take out a home equity loan if your place is worth more than your debt on it. In that case, you can get a loan for the amount of that debt, and the good news is it will take your initial high-interest debt and turn it into a much lower one, which is good if you’re in a tight spot, financially speaking.
The bad news—and it is very bad—is the fact that you’re risking your home by doing this. You’re changing the unsecured debt into a secured one, which means you’re putting the entire place at risk of foreclosure if you’re not careful. So, you definitely need to think twice before taking this step.
Loans for bad credit
One of the worst things that could happen to a person already suffering from a financial crisis is having bad credit. It exponentially complicates things, and the odds of you getting a loan are significantly reduced. It’s still not impossible, but you will need to start sourcing the right borrowers for personal loans who will not have a problem with lending you the money, despite your bad credit history.
The good news is you’ll find plenty of those out there, but the bad news is that they may charge higher interest rates than your average bank.The problem with your condition is the fact that lenders view people with bad credit as a potential risk, so you can’t really blame them if they charge higher interest rates. This is why you need to carefully shop around and look for the best possible options; don’t just go with the first offer you get, because chances are, there’s a better one for you out there.
Peer to peer loans
This is a great option that many people are resorting to because it takes banks out of the equation, and who really likes dealing with banks? Peer to peer loans is when you borrow money from online services that work with lending, and if you use this kind of loan, your interest rates will most likely get better in time.
It’s definitely not a bad idea, but you need to also beware of whom you’re dealing with because there are shady lenders out there. So, take your time with the search and make sure you find someone with good reviews and established credibility.
A debt consolidation loan
This is the kind of loan that does what we mentioned earlier; taking all of your debts and consolidating them into one big payment plan. While this may seem like a dream come true—considering the possible sources of debt people have from credit cards, loans, mortgages, and others—the consolidation option is far from perfect. For starters, it comes with a high-interest rate, and what’s even worse, it takes a much longer duration. So, unless you’re certain you can pay this loan back on time, never get it.
Should you take a personal loan to solve your financial problems?
That is one question that only you can answer. It is possible for it to solve your problems on a short-term basis, but in the long run, it might hurt you. Nobody knows your financial situation better than you do. So, do the math, and come to a decision on whether or not a loan can help you.
At the end of the day, the most important thing is to improve the financial practices that got you with debts in the first place. You definitely don’t want this situation to happen again, so what you need to do is figure out a budget and stick to it. That way, you probably won’t find yourself in an uncomfortable situation again.
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Interesting related article: “What is a loan?”