Find out when it’s worth it and what precautions to take with that decision Here is a question that doesn’t stop: is it worth taking out a loan to pay off financing or a debt? This answer is not simple, but it is usually quite logical, because it will be: it depends.
That’s right, all debt grows on top of interest, and it is based on that you will be able to assess what your best options are.
When it’s worth it
Whenever you have options to pay off financing or debt with a loan and have better interest rates and even better payment terms, this move is worth it.
But, be aware, you are still exchanging one debt for another, that is, your commitment to your financial education must be on the rise.
To escape the revolving credit card
Credit card revolving, which is when you pay only the minimum and are at the mercy of compound interest (which increases every day over the previous day’s interest), is one of the most expensive interest rates that the consumer can have to afford. The average interest rate for card revolving in Brazil is 352.76% per year and 15% to 20% per month, according to a survey.
But still, this is an average.The same institution made a survey with department store cards and found that this interest can reach 875% per year. Now, with the new revolving rules stipulated by the Cream Bank, the customer can only pay a minimum of 15% of the credit card bill for 1 month.
If in the next account it is not possible to settle the debt, the card-issuing bank must propose a line of financing so that the debt is resolved.
To clear the name
In a hurry to get your name off the list of defaulters or bad debtors on the market, taking out a loan to pay off a debt can be a good option.
After negotiation and payment, the institution you owe has around five days to inform you that you are no longer in default and your name must be immediately removed from the registrations.
You must be thinking that if your name is dirty you will not get a loan, right?
Rest assured, even if your name is negative, there are some options like the ones we mentioned before: secured loans are usually less demanding in this regard because you enter a counterpart, such as a property or vehicle.
Get discount to pay
The great advantage of paying off debt at once is getting a good discount on the interest you would pay if it took longer.
Who you should want to receive, so the negotiation is important to fulfill the wishes of both parties: yours to get rid of a debt and that of the borrower to have the money returned.
There are times when your debt can be reduced by up to 90%. In this case, the loan is very welcome.
Care when taking a loan to settle debts
Even in situations that are worth taking the loan to pay off debts, some precautions are necessary. Check out what to keep an eye on:
Charges and interest rates
Carefully evaluate interest rates and charges on the loan to make sure this is an advantageous deal.
Don’t forget to check the CET – Total Effective Cost of the loan. When you apply for one, you don’t just pay interest. Along with it, there are still charges and other fees that can make the transaction more expensive.
This means that as much as the interest rate seems cheap, the CET can reveal a higher cost than expected.
You are considering a loan to pay off debt in search of better payment terms.
It makes no sense to take out a loan to pay off a debt and get worse than before. That is, keep an eye on the new installment that you will commit.
Remember the rule of not committing more than 30% of your monthly income, more than that can become a snowball and make your situation worse.
Scammers are looking for desperate people, looking for quick and easy credit. Be wary of tempting proposals.
Keep an eye on whether the place where you negotiate the loan is registered with the Cream Bank for this and if it is reliable.
Read the contract carefully and be aware of all clauses and commitments.
Alternatives before a loan
Before considering the option of taking out a loan, it is interesting that you try some options. Having a financial organization up to date can help you get out of debt sooner than you think.
Saving money, cutting expenses and investing to make more money are some options. You can also:
- Seeking extra income to increase sales.
- Dispose of goods or even things of value that you have at home and do not use often.
- Use a financial reserve, such as savings and savings.
See how everything has two sides?
You can always evaluate and find the best solution to your problem. Enter the Bom Pra Crédito website and check out these and more options.