We often hear from debt-laden individuals on the lookout for a small personal loan to consolidate their debts. They are behind in some of their repayments, credit cards are over the limit and all they can think of is to take out another small loan to tie-them-over for a few weeks when things are bound to get better…..but why?
We have all been conditioned that when running short of money the best thing to do is borrow. This is of-course rarely the correct strategy.
When is a personal loan for debt relief ok?
Personal Loans may be a suitable form of debt relief when you have a few small debts that you would like to bring under a single loan umbrella. The applicant should have strong financils and a good credit history. There should be no arrears/defaults on their Credit Report. While applicants with a strong financial histoy may be able to qualify for an unsecured debt consolidation loan, such a loan may not necessarily offer the best debt relief to the borrower.
For example, credit card debt is best to be rolled over at 0% for a period of time to another credit card – and paid off ASAP during the 0% interest period. However for this to work well the borrower must be a very disciplined individual who is able to commit to a fast debt repayment schedule, and not use the new card for making any more purchases.
When is a personal loan for debt relief an impossibility?
Individuals with unstable income and a poor credit history will generally not be able to qualify for a personal loan for debt consolidation – although it is this type of borrower that tends to most frequently look for such a loan.
The problem being that when you do apply for a new loan, the lender will need to assess your ability to repay such a loan. Borrowers with bad credit and out of control debts will rarely be able to persuade a lender that they are a good risl for such a product. However this does not mean that if you are less than a “Premium” borrower, you cn not find debt relief.
What other debt relief alternatives exist?
Some of the debt relief alternative available to bad credit or low income borrowers include:
- Debt Negotiation
- Debt Agreements
- Hardship arrangements with lenders
- Financial assistance from Charities etc.
Ultimately borrowers who are unable to qualify for any of the above forms of debt relief may consider Personal Insolvency or Bankruptcy, as a last resort.