When we pay back one loan and take another one to settle it, the circle closes. We fall into a financial trap, i.e. debt spiral.
Repayment of the loan with another loan
Hence, usually, the answer to the question about taking a payday loan to pay off an earlier commitment is categorical and reads: no. Each subsequent loan will be higher, and thus – will be associated with higher costs.
As a result, the balance of our receivables will gradually increase, and with poor management of the home budget, this translates into the risk of chronic debt. There is a different solution to the non-banking sector.
Pay the appropriate fee
Loan companies offer people who have problems with the timely return of money an extension of the loan, which is usually an additional 30 days for repayment.
However, this is also a half-measure, because for postponing the deadline you have to pay the appropriate fee, which can even be a large percentage of the amount borrowed. Therefore, we have another expense that must be incurred once and at the latest on the last day of the original repayment date.
Or Loan Consolidation?
The situation is different in the case of cash loans or credit cards at the bank. If we have several financial liabilities and we are unable to pay all of them on time, we can combine them, i.e. take one loan to pay off debts. This so-called consolidation loan. It allows you to replace several installments, one.
Usually, it is lower. In addition, the repayment period is extended. The advantage of this solution is also that we do not have to remember the repayment dates of many liabilities.
In addition, taking a consolidation loan, we can also get additional cash that we can spend on any purpose. Usually, with the help of a consolidation loan, we can pay off another cash loan or loan, credit card, overdraft, car loan or mortgage.
It is wise to approach the issue of taking payday loans or credit to settle your previous debt. This solution is good when our financial problems preventing timely repayment of liabilities are temporary and result, for example, from the fact that we have an irregular source of income (work contract, commission contract, etc.). As soon as we get paid, we can return the money.