Should You Take Out a Personal Loan to Pay Off Debt?

March 12, 2019
personal loan to pay off debt

Are you one of the 25 million South Africans who are in debt?

If yes, you’re likely familiar with the toll debt can take on your financial and emotional wellbeing – especially if you’re behind with payments. From collection agencies calling you incessantly to being listed in the Credit Reference Bureau, debt can be a nightmare.

However, the best way out of such a situation is to pay up what you owe. If you don’t have sufficient income, you could take a personal loan to pay off debt.

But is this a smart decision? Here are instances when you should do it.

When Consolidating Your Debt

If you have a couple of high-interest, unsecured loans, debt consolidation is a good idea.

You take out a consolidation loan, after which you use the money to pay off the other loans. Since consolidation loans typically charge lower interest rates, you get to save money which you would have otherwise paid as interest for the high-interest loans.

Bear in mind that not all consolidation loans charge low interest rates. Before going in for one, do some math and establish whether you stand to make substantial savings. If it doesn’t, then taking out a loan to pay off debt will be like digging a hole to fill another hole.

When Your Assets Are at Risk of Seizure

If you default on a secured loan, nothing will stop the lender for seizing the asset you put up as collateral.

If you attached your house, for instance, seizure means you risk homelessness. Or if you put up your car, repossession could mean losing your source of income – if you’re, say, an Uber driver.

In these cases, taking out a personal loan to pay off the debt that’s putting your assets at risk is an advisable move.

When the Loan Will Help You Make More Money

Are you planning to get a personal loan and use it to start a profitable small business or invest in another venture with good returns?

You can go ahead and submit your application!

There’s some risk involved, though.

You see, using a loan to start a business can backfire and leave you in more debt if the business fails. Sure, risks are there to be taken, but if you don’t at least have some level of certainty that your investment will pay off, don’t take the loan. It’s better to be safe than sorry.

When You’re in an Emergency

An emergency can leave you in need of a lot of money urgently.

If you fall ill, for instance, your medical bills can quickly add up – of course depending on the nature of the illness. If the hospital was gracious enough to attend to you without requiring upfront payment, by the time you’re discharged you’ll be in debt.

What do you do if you don’t have health insurance or a rainy day fund?

Get a personal loan to pay off the debt. The situation calls for it.

You Can Take Out a Personal Loan to Pay Off Debt

In an ideal world, no one should ever use have to use debt to settle another debt. But our world is far from ideal. Things happen and before you know it, you’re in debt.

If you don’t have an income or enough savings, taking out a personal loan to pay off debt can be a smart decision. Just ensure you’re in a situation that makes going in for a loan necessary.

What’s more, you don’t have to look far and wide for the loan. At Hoopla Loans, we’ve got your credit needs sorted.