Many people are critical of debt, but taking out a loan can actually be a financially positive thing in the right circumstances. A loan can be a great tool to get back on track on your journey towards wealth. Keep reading to learn how to use a loan for your ultimate financial benefit.
Consolidation Existing Debt
If you have a lot of debt it’s likely you are struggling to keep up with all the repayments, even paying the minimum payments. This can be very stressful and can have knock-on effects in all areas of your life. If you are financially stressed, you may struggle to concentrate at work or the stress could result in your body getting run down and ill. Taking out a consolidation loan can help bring some control back because your monthly payments are reduced. This is possible because the new loan will likely have a longer pay-off period. This is not the ultimate solution to the debt, but it buys more time to turn things around. The interest rate could be lower too, especially if the loan is replacing credit card debts. A consolation loan is like a rubber ring for someone in the sea. It doesn’t bring them safely to shore but it buys valuable time and stops them panicking quite so much, providing some perspective and temporary relief. When you’re not panicking and stressing you can work out a plan, and you can keep the lights on at home and food on the table. You can get loans from banks like Secure Trust Bank, Credit unions (in the US) or Building Societies (in the UK).
Getting out of Underwater Cars
Buying expensive vehicles on credit is an easy way to get into financial difficulty. A car payment can fool someone into thinking they can afford more car than they actually can. If a car loan is taking a huge bite of your monthly salary, it is also easier to get into debt with other things too. If you are struggling financially, selling that expensive car you have in your drive-way could be a great way to kickstart your new and improved financial plan. However it may be impossible to sell if you owe more than the car is currently worth. This is known as being ‘underwater’. If you wanted to sell a car that is ‘under water’, you would need to get a loan for the difference between what you owe and what the car can be sold for. It might not sound like a very attractive prospect – being left with debt and without a car – but it’s actually a good thing because once the sale has gone through you no longer have an expensive car-payment, nor a car that is only going to go further down in value. At this point, you should buy the cheapest car possible as a temporary measure until you’re more financially secure and you can gradually move up to a better car over time, paid for with cash rather than debt.
Paying for an emergency
In an ideal world everyone should have a rainy-day fund for financial emergencies. But sometimes, that emergency fund is not there and you need an alternative. A loan is simply renting money. Yes, it can be expensive over time, but everyone pays for things they need and want if they value them – and paying for money with money is the same thing! If you really need the money for something, then a loan has a purpose. The key thing is to be conscious of the choice, rather than ‘falling into debt’. You need to formulate a plan to pay off the debt with intention and speed. You also have the right under section 94 of the Consumer Credit Act 1974 in the UK to repay early in full or in part although you may need to pay 1 or 2 more months’ worth of interest, as stipulated in the loan agreement.