Borrow Money to Repay Debt
June 27, 2020

Despite being careful, you end up being in debt. It is a significant financial obligation: the more you put off, the deeper you sink in debt. When you face cash shortfalls, you turn to your friends and family. However, not all the time, you are lucky that you will get financial support from them. Further, it can put a strain on your relationship if you fail to pay them back, and when you use the last resort – you turn to direct lenders.

Some lenders are out there that approve your loan application but at a high-interest rate and along with collateral. Much as you are sure that your repayment plan will work this time, you are still taking on considerable risk. So, what should you do?

Some people think they should take out personal loans in Ireland to repay debt. These loans are unsecured and hence there is no risk of losing your valuable asset. Here is why these loans can be a good idea:

  • You can borrow a large amount of money, which means you can easily tackle the debt repayment.
  • Neither will you have to arrange a guarantor, nor will you have to put in collateral. Since there is no financial obligation, it is easier to manage the loan repayment.
  • Another benefit of taking out a personal loan is you will repay it in fixed monthly instalments.

Personal loans seem to be an ideal option, but note that not all direct lenders charge affordable interest rates. As your creditworthiness is already sceptical, it can be hard to get the loan at competitive interest rates. Some of the lenders may turn down your application due to bad credit. When it is challenging to have a personal loan signed off on, what other alternatives are available to you.

Debt consolidation loan

As the name suggests, a debt consolidation loan allows you to combine all of your outstanding loans to pay them off at once, leaving you will get one larger loan to repay. It means you will add up all of your existing loans to know how much you have to pay off and borrow that money at an affordable interest rate. You will use that money to pay off the current debt, and you will have one debt to repay in monthly instalments. The following are the benefits of debt consolidation loans:

  • You will pay off the loan in fixed monthly instalments, and hence it is much more manageable.
  • Interest rates will be much lower than what you have been paying on credit card dues, payday loans, and personal loans.
  • If you make all repayments on the due date, you will have your credit score up, improving your chances of borrowing money at attractive interest rates down the road.

Debt management plan

Another good option to get out of debt is opting for a debt management plan. If you are struggling to have surplus income after meeting all of your monthly expenses, a debt management plan can be a good option. It is an agreement between you and your lenders about monthly repayments.

Debt management companies can do all formalities on your behalf and convince lenders to accept smaller payments. However, note that lenders will not freeze interest on the amount you owe.

You cannot escape the debt by opting for this plan, but you can opt for smaller monthly payments. Once you opt for this plan, you will have to make one monthly instalment that will be further divided between your lenders.  

If you cannot keep up with repayments or fall in debt, you should immediately talk to your lender. Ask them if they can help you deal with this situation.

Whether you take out a personal loan, a debt consolidation loan, or enrol in a debt management plan, you must create a budget and track your expenses. Try to increase your income sources so you can quickly get rid of debt.

If you are struggling to be on top of your expenses due to your job loss, you should consider a part-time job or freelancing to allow for smooth cash flows.

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