Top 3 Reasons Why a Personal Loan Can Be a Good Idea Even for Borrowers Already Burdened With Heavy Debt

[May 7, 2009.]

 

For borrowers who are facing down large debts that they can't, at the moment, pay, the desire to not incur any more debt until existing debts are paid off is entirely understandable.

It can also be entirely disastrous. This is not to say that everyone who's carrying a lot of credit card debt should run out and apply for yet another unsecured personal loan. Repeat: this is not to say that.

This is to say, however, that an unsecured personal loan, used wisely, may be a great decision for a debt-burdened borrower. Here are three reasons why that counterintuitive truth is true:

1. Getting One Loan to Settle Several Others

Borrowers who have gotten into trouble with debt are frequently talking about credit card debt. The interest and penalties on credit card debt can be brutal, especially for unemployed people, of whom there is no shortage at the moment.

Faced with a mountain of credit card debt, many borrowers do one of two things: either file bankruptcy, or resolve themselves to a life of drudgery trying to pay back a constantly growing debt.

A third option that is gaining popularity is called debt settlement or debt consolidation. With debt settlement, creditors agree to reduce a borrower's debt in exchange for the borrower paying a chunk of the debt right now.

How might a cash-strapped borrower come up with a chunk of cash to get rid of a credit card debt once and for all, without filing bankruptcy and with keeping her dignity?

Obtain an unsecured personal loan with a fixed interest rate, plan out how much you're going to offer each credit card company to settle what's owed once and for all, and get on the phone.

2. Earning Out of Debt

The best way to get out of debt, of course, is to start making more money. Often, for people working for a company, waiting for that yearly raise seems like an eternity -- and that yearly raise may not even come, anyway.

What about starting a business? That can be a good idea, if there is a good enough idea to start a business that will make money in the near term. Note: businesses that require significant upfront investment (offices, employees, machinery) are not a good option for borrowers already loaded down with debt.

Instead, think about low overhead businesses such as a service business or an Internet business.

More importantly, test the business idea with hard numbers and facts. Research the market need and the competition. Don't rely on opinions and success stories told by other people.

And, if the time and opportunity seem right, go for an unsecured personal loan and use the money to start a business.

3. Riding Out the Cycle

In a capitalist system, the good times are good and the bad times are bad. But overall, it's a matter of cycles. When things are bad, good times are often just around the corner.

People who get caught in the bust cycle of a poor economy may have trouble recovering from the psychological injuries associated with such unfortunate events as eviction, car repossession, and even homelessness.

If a personal loan can help you avoid one of those misfortunes, it's probably a debt worth taking on.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.