3 Signs Personal Loans Won’t Work For You
Saturday, January 27, 2018, 6:00 PM | Leave Comment
Personal loans are convenient and easy-to-access, but it’s not good for someone who has way too much debt. It will only give you an immediate relief but the multiple unpaid debts are still there.
Here are signs that personal loans won’t work for you.
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Living in denial
If you deny that you’re having debt issues, when you actually see your debts rising and you’re probably rationalizing that debt is actually good for you, then you are in trouble.
While mortgages, home equity loans, business and personal loans are tools to increase your wealthy, relying too much on them is a sign that you’re borrowing too much.
It’s true that the aforementioned types of debts are considered as good debts because of their wealth-growing potential, but what about the bad debts, or those that depreciate in value overtime?
Think of car loans, consumer debts and credit card debts—they are bad for your budget because as the value of the items you purchased with it decrease, the interest increases.
True, you may have paid all your credit balance in a month, but if your income is no longer enough to cover your expenses and your savings are gradually dwindling, maybe it’s time to reconsider another loan option—debt consolidation.
While personal loans can meet your immediate needs, having too much debt is an indicator that you need a type of loan that will pay all your debts and make it easier and more convenient for you to pay it off. It is the first step to be smarter about your money and totally pay off all your debts including your mortgage in a few years.
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You can only pay the minimum
How many active credit cards did you open with large amounts of debt? If you have dispersed your debts with so many accounts, it is really difficult to know how much you really owe unless you request a copy of your credit report and do that math.
Consequently, you may just be paying the minimums every month and think that you’re doing good.
If you want to give yourself a wakeup call, create an expenses worksheet.
List down the following:
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every debt you have
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interest rate
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minimum payment you make each month
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monthly income and expenses
It will give you a ballpark of how much you make and what’s left over after you deduct all the expenses and bill payments. You may also realize that your minimum monthly payments on consumer debts, credit cards, and personal loan were as much as your mortgage. It’s because making a minimum payment on your credit card only covers whatever interest you owe.
Minimum payment only covers a small percentage of your principal balance. That means it would take longer for you to pay off your principal. In the meantime, your debts are racking up interest on your unpaid balance.
So, while the things you bought with your credit cards and loans lose their value, your loan grows bigger while you only keep paying the minimum.
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You don’t have spare cash in your pocket
Do you have an emergency savings fund? If not, do you consistently borrow from other people or make cash advance, apply for payday loans or a personal loan to pay for your necessities, utilities and other bills? If your answer is, “Yes”, clearly you have too much debt to deal with.
Also, if you are regularly using a credit card to pay for the purchases, debts or the debt on another credit card, you have a debt issue.
While it is normal for someone to use the plastic card for purchases, using it on a daily basis as if you’re paying in cash, or converting it into a repayment tool for your debts is an indicator that your debt situation is getting way too out of hand.
Doing a balance card transfer is actually encouraged to get around with high-interest credit card accounts. But, if it is already a habit of yours to do balance transfers because you’re avoiding escalating debts form other credit accounts, then it a financially dangerous practice. You may get caught up in a cycle of debt where you get a new card to pau off an old one and so on.
You think if you earn more you’ll eventually pay off your debts .You might say, “If I can’t increase my credit lines I’ll get another gig and probably with a 6-figure salary I can finally be debt-free.” Well, that’s a very encouraging thought. But in reality it is difficult to out earn your debts, simply because it is your borrowing habits that put you there in the first place.
Bottom line
Personal loans can help you meet your short-term needs, but if you really want to go to the root of your debt problems, a debt consolidation loan can help you better. It will simplify your loans, make it easier for you to pay off one bill each month and give you a fresh start in borrowing. Educate yourself and start making financial plans based on your goals.
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