Debt cycles happen more than people care to admit. People will take a personal loan to consolidate high-interest debt only to begin creating these same obligations after the loan has been established.
It’s often because the monthly loan repayments, while affordable with other obligations, leave no money for savings or emergencies. Because of that, when one of these immediate needs occurs, individuals tend to turn to a credit card to get through the circumstance.
That not only creates another bill for the month but cuts into the monthly living expenses, making it necessary to use the credit card more to accommodate these costs.
How does someone relieve this type of situation? Is considering adding another lan pa dagen uten sikkerhet ( loan in one day without security) simultaneously with the existing one a wise decision, or will this add to the cycle? Maybe consolidating all the existing debt is a better solution. Let’s read.
How Can You Manage A Debt Cycle
Suppose you’re considering the option of taking another consumer loan simultaneously with your current loan but had to take on credit cards to help with monthly living expenses since these became challenging with the first loan.
In that case, you might want to consider how you can get out of debt when and if you make this move. It’s essential to stop the debt cycle you’re creating before it grows out of control and you have difficulties breaking it.
Look here for guidance on handling more than one loan account. Let’s look at things you can do to manage multiple loans better, plus set out to pay off some of the other obligations.
- Loan consolidation
You might find it curious why you would consider another loan if you have had a personal loan, obtained another one because the one wasn’t sufficient, and then were advised to get a third.
Still, the idea with a third (and hopefully final) loan is to consolidate any debt accumulated to this point allowing for one single fixed repayment each month carrying a designated interest rate and a set term when it will be paid in full.
It is a much more efficient way to manage your debt than having a multitude of bills to keep track of with varied interest, different repay due dates and amounts to keep track of, and final payoffs. This will actually save you money in the long term, especially if you opt for a shorter term and pay a higher monthly payment.
Don’t choose this option, though, if it will mean not being able to afford living expenses because you will fall back into the debt cycle again. Make sure to create a budget once you consolidate to help stay on track.
- Start paying
When you decide you want to start paying off some of the debt to get out of the cycle, make sure to prioritize, especially if you have multiple loans. The ones that you should begin with will be determined by the interest, starting with the highest and then choosing the ones with the highest monthly installment.
With the one you narrow down to, you will put all your effort and extra resources into that loan until it is eliminated. The other obligations will receive minimum payments.
Then you can move on to the next one and pour everything into that one until it’s paid in full, and so on. As you pay one off, those funds can help pay the next one.
This process references as a “debt avalanche.” It’s essential to ensure no payments are delayed or missed on any other obligations in order to accomplish this effort. That will defeat what you’re trying to do, which is not only clear debt but to keep your credit intact.
- Increase income to help with debt relief
An increase in income should help make the “debt avalanche” process work. If your income is insufficient to make extra payments or add resources to any individual loan, it’s worth trying to find a way to add to your income level.
That could mean taking on extra hours with your employer, perhaps asking for a different position with the company, or maybe a promotion. If those are not options, it might be necessary to look into a side gig, whether in a different field entirely.
The additional money you make will serve as a significant resource for paying the debt down much faster, allowing loans to be closed earlier than the term, saving expenses and improving the credit score.
- Consistency and timeliness are key
Commitment to paying all obligations in a timely and consistent manner is essential. Whether you pay extra resources on a loan will not matter if you delay the payment past the scheduled installment date or miss a payment and pay more the next time it’s due.
Your payments need to be prompt, consistent, and on the actual due date. One feature creditors prefer borrowers use when paying back debt is automated payments.
Some creditors will give perks for using this option. It helps decrease the potential for penalties for late repayments, helps decrease interest paid, and reduces the debt.
If you’re paying a credit card bill, the recommendation is always to repay the entire balance due with the monthly installment instead of merely repaying the minimum amount due.
Interest will be carried over to the next bill when the minimum is paid. That eventually can result in a debt cycle if you continue this pattern throughout the life of the debt – and are continuing to use the card.
Another recommendation is never to max out the credit limit. Keep the balance reasonable so you can pay the monthly installment in full. If there’s a lavish purchase you want to make, the suggestion is to save for the expense and then buy it rather than creating a debt that needs to be paid over a several-year period.
Final Thought
Typically when a person takes a consumer loan, there’s a significant purchase, milestone, emergency, unavoidable expense, debt that needs to be consolidated, and there is no savings or emergency fund to accommodate the cost.
Unfortunately, if you take a consumer loan and have the installments added to your monthly obligations but still have no savings or emergency fund, and one of these situations rears its head once again, how will you react now that you’ve already taken a consumer loan the previous time?
Do you pay your living expenses and the emergency with high-interest credit cards, or will you better manage with a second personal loan? It takes a great deal of discipline, but it is possible to handle multiple loans plus pay down debt and accrue a savings and emergency fund.
It begins with creating a budget that you’ll be able to stick to stringently, bringing in as much income as possible even if that means taking on added responsibilities with the extra resources applied to one obligation at a time, and then following the steps associated with a “debt avalanche” approach to your commitments.
Avoiding further debt during and after the process is key to your eventual financial success.