Paying off your debt should be one of your biggest financial priorities, and there are many ways to do it. One of these, which has been pioneered by modern financial technology providers like Progressa, is to give debtors the option to take out loans with which to pay their existing debts.
Now, wait a second. How does it make any sense to pay off your debt by taking on more debt with another loan? More so than you would think, as it turns out. Read on to discover how applying for a loan to consolidate or eliminate your debt costs can work for you.
Simplify the Sources: a Case for Debt Reduction Borrowing
Most of the time when people find themselves burdened by debt, it doesn’t come from just one source. There may be credit card payments, automobile payments, utilities, medical costs, student loans, or any combination thereof all contributing to what you might owe.
Each of these debt sources will have its own interest rate, and all of them add up. This makes it progressively harder and harder to chip away at each individual debt source over time. Taking a loan allows you to strike out some, if not all of these competing debt sources. Sometimes, you may just need enough to pay down one source – the savings from reduced interest might be enough for you to start paying down the next, and then the next until you’ve cumulatively worked through each one.
While the previous strategy certainly can work, remember that the longer you hold on to your debts, the more damage they do to your financial health. A well-structured debt reduction loan might be able to provide you with enough short-term cash flow to pay off all your existing debts in one stroke, freeing you from the cycle of penalties and interest payments as soon as possible.
Evaluating The Cost of Borrowing
Many people will look at the potential cost of borrowing of a debt reduction loan, and be concerned that it is higher on an annual percentage basis (APR) than many traditional financial products. This is an understandable concern, but APR doesn’t tell the whole story! Personal loans of this type are most often unsecured, meaning that you do not have to put down collateral for the loan, but these loans are designed to offer lower rates either individually or in aggregate compared to the total amount of interest you are paying on existing debt.
You will still have to pay off your loan at a predetermined rate, but doing so is made easier by the newly accessible cash flow resources that come from being otherwise debt-free, and by lender incentives that reduce the cost of borrowing over time. With Progressa, you will qualify for automatic interest rate reductions every six months, ensuring that your debt reduction plan is wrapped up sooner so you can get on with your debt-free life faster.