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HomeBlog Personal Loan DebtWhy You Should Avoid Taking Out a Second Personal Loan
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Why You Should Avoid Taking Out a Second Personal Loan

February 11, 2021 by Josephine Nesbit

Learn about why you should avoid taking out a second personal loan
See why you should avoid taking out a second personal loan

Just because you can take out a second personal loan doesn’t mean you should. Taking out a second one can be disastrous if you already have trouble managing your debt. Personal loans are the fastest-growing form of consumer lending in the United States. Personal loan debt has almost doubled in four years, from $72 billion in 2015 to $143 billion at the beginning of 2019.

Although reasons differ as to why personal loans are sought out, many Americans choose to use personal loans to pay off other forms of debt such as student loans or credit cards. Here are some of the extra financial pressures that come with a second personal loan and other available options.

You Could Go Deeper into Debt

It might seem like a good idea to pay off one loan that has a high-interest rate and replace it with a second personal loan, but this could easily become a cycle. If you’re frequently taking out personal loans, it’s time to look over your finances.

Make sure you’re bringing in enough money each month to pay bills and other essential expenses. Start cutting back on unnecessary expenditures and instead put that toward any debt.

It Affects Your Credit Score

Every time you take out a loan, your credit score takes a temporary hit. Hard inquiries are indicators of uncertainty, which could be a possibility of risk to lenders. Taking out additional loans also increases the possibility of a missed or late payment, which will also affect your credit score. These hits to your credit score can affect your ability to obtain other forms of credit with more favorable terms.

Don’t Forget Interest and Fees

Although interest rates for personal loans tend to be lower than those for credit cards are, note that your credit score, debt-to-income ratio, and financial history will dictate the interest rate. It’s also important to be aware of the terms of your loan and the repayment period. Going over this time could mean additional fees.

It’s a Temporary Solution

In the end, taking out a second personal loan isn’t going to fix any problems. What put you into debt in the first place? What’s your solution for getting yourself out of debt? A personal loan cycle isn’t going to solve any underlying financial issues. You still need to pay back what you owe.

Alternatives to a Second Personal Loan

Although you can use a personal loan to finance almost anything, it might not always be the best choice. Here are some other options to consider.

Balance Transfer Credit Card
Balance transfer credit cards are typically used by borrowers who want to save money by moving credit card debt with a high interest rate to one with a lower interest rate. Some credit cards may offer a 0% APR for a certain length of time so that you can start to pay off debt without paying interest.

Dedicated Savings Account
If you can delay the payment and save the money to pay in full, that might be a better option than taking out a second personal loan. Put money aside in a separate savings account and use these funds instead of borrowing money.

Payment Plan
With some outstanding debt, such as a medical bill or a late utility bill, see if you can work with your provider to set up a payment plan. More often than not, you can pay a minimum amount each month until the balance is paid in full.

Debt Management Plan
Another option is to work with a credit-counseling agency to put together a repayment plan and deal with creditors and collection agencies to negotiate a lower interest rate. Not only are you offered professional advice such as financial and credit counseling and budgeting help, but you’ll have debt rolled into one monthly payment and be held accountable to stick to your debt management plan.

Rethink a Second Personal Loan

A growing number of borrowers are turning to personal loans as a way to relieve the stress of debt, at least temporarily. Before taking out that second personal loan, consider exploring other options first. Each circumstance is different, and you may find that the alternative will be cheaper in the end.

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** Audited by: Dianne Ernsting ** Easy National Debt Relief Caller: Nocona Transcribed WE 2/28/2021 Nocona: The call is recorded. Tell me a little bit about how you came across National Debt Relief and why you decided on their program over some of the others that are available. TRACY: I actually did an internet search. National Debt Relief was the first one that came up. I looked at that one, and I kind of looked at a couple others. And it's been so long, I can't remember exactly what it was that made me interested in National Debt Relief over the others. But I ended up calling to just get some more information. And I talked to a woman. I believe her name was [Sierra Myers 0:01:08] or [Sierra Meyer 0:01:10]. I believe that's her name. Again, it's been a long time since we started the program. I can't remember. I mean, when I called, I was at a point where I was crying on the phone with her. And she was so kind and calm and caring and understood where I was coming from. And we had been through a really bad time. Our granddaughter had died at birth. And I just had gone into a complete tailspin. And that's why we ended up where we were. So I got information from her. I talked to my husband. And we decided to go with National Debt Relief. Nocona: Tell me a little bit about the customer service side of things. How did you feel about the way they handled any questions you had along the way or just the communication overall? What was it like? TRACY: I've been very pleased with the communication overall. I sometimes wish that things could go a little bit faster. [chuckles] But that's just because I just want to get through the program a little bit quicker. But just based on where we are and what we had to do and how much money we can put into it every month, we are doing what we can. But when I call and I have questions, they always answer my questions, and they do it very well. Nocona: Is there anything that you think they could improve about the process or anything you'd like to see them do differently? TRACY: No. The only thing that I know just sometimes -- and I don't think this is on National Debt Relief's side of things, but I know that a lot of times I'll get calls from debtors, and they're wanting information, and they claim that they can't talk to National Debt Relief. But I think that a lot is coming from the creditors' side of things, because they want us to settle with them. So just that part of it can be a little frustrating at times. But again, I think that's probably more on the side of the creditors than National Debt Relief. Nocona: Any advice for people that are thinking they might have to go through this kind of program? Anything that you think is helpful to either be aware of or to be ready for when you start it? TRACY: Definitely be ready for the fact that it's not something that is just a one-year program. It takes a while to get through. That was something that I was definitely not ready for. I didn't expect that we would still be looking at being in the program for at least another year, is something that I definitely did not expect. 'Cause I believe we started in 2018. And I had kind of hoped that at this point in time we would be getting ready to graduate from the program. So that's something that someone should be aware of. Not that it's a bad thing. Just being aware that it does take longer than what you think it will. Nocona: Just based on the experience you had going through the program, where would you put National Debt Relief from a one to a five, a five would mean you would definitely recommend signing up to their service, a one means you're very dissatisfied? TRACY: I would say 5. Nocona: Is it okay if we share your comments as a review on our public website to help people that are considering debt relief programs? TRACY: As long as you don't use my last name. Nocona: Yup. We don't publish last names. It just goes out with a first name. So it would just be under 'Tracy' if that's okay. TRACY: Yes, that's fine. Nocona: I have farney7218@gmail.com. Is that the right address for you? TRACY: Yes, it is.

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