Would you take a loan to pay another?

Discussion in 'Financial Planning' started by remnant, Jun 7, 2016.

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  1. remnant

    remnant Expert Member
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    Some people find themselves in dire financial straits unable to service their loans. This precipitates the threat of of auctioneers pouncing on precious property some of which are several times bigger than the loan. My take is that one can take an interest free loan from an individual or financial institution to survive the crisis before one gets back on his feet and negotiate it to be spread over an appreciable period of time with the property at risk of being auctioned serving as collateral.
     
  2. ally79

    ally79 Member
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    Typically I would say no in ideal situations, but right now we are climbing out of a rough financial patch and have had to do just this. Hopefully we will be able to get everything straightened out in the next couple of months.
     
  3. Correy

    Correy Expert Member
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    Taking a second loan to pay the first one is a bad move if you don't have a bug out plan in the next month, like getting a better job or expecting a large payment. Other wise eventually you'll be swarmed with interest rates adding to your actual debt.

    If you don't see light at the end of the tunnel it's best to request audience for a settlement with the bank. Not every bank will accept, because it's in their best interest to keep you in prolonged debt, to milk you through interest rates. However some of them do agree to speak with you at least. You can explain the situation and show them proof that you're about to receive money, like if you've been newly hired and haven't received the first paycheck yet. To do that you need to make some convincing arguements and you might also want to seek counsel with free financial counselors from state services.
    If the bank turns your settlement arguement down, then definitely go seek financial counceling, there's sites with more info like nfcc.com (national foundation for credit counseling) that give free counsel. They'll give you some advice on how to handle debt, and on how to present your arguements to banks, what your rights are, what the bank can do to you and what they can't. Often debt collectors come up with absurd threats just to spook you into paying up.
     
    Iohndee and Arboreal like this.
  4. Endure

    Endure Expert Member
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    If you're doing this then you definitely have performed poorly with your financial situation. The main reason to do this is to win time or finish a loan payment with a prospective increase in the interest rate. If time is what you need, you should take a long term loan with lower interest rate, such as a mortgage.

    In any case, when you are thinking in taking loans always look for trustworthy banks. Not every bank institution wants you to become its personal interest rate money milking cow.
     
  5. John Snort

    John Snort Well-Known Member
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    There are people I've heard who are forever in debt. They took a loan, were unable to pay it and they go round taking loans to repay the loans — a vicious cycle that's almost impossible to break.

    A survivalist first focus should be being debt free. If you are then you could focus solely on prepping.
     
  6. lonewolf

    lonewolf Moderator Staff Member
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    whats a loan??:D:p:rolleyes:
     
  7. Kev Brown

    Kev Brown Active Member
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    Generally, this is only a good idea if the second loan has much better rates of repayment than the first. It's best to put a plan together to ease your debt levels rather than jump from one company to another.
     
  8. lonewolf

    lonewolf Moderator Staff Member
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    you cant even start to prep if you are heavily in debt, you will be spending all your money on servicing the debt rather than putting back items for prepping.
    paying one debt off by taking out another one is, at the very least, bad practise.
     
  9. Arboreal

    Arboreal Active Member
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    Generally, you should do it only if you have your back against the wall, or if the next loan has lower interest rate (good luck getting such when you're already in debt, though). @Correy has very good advice on how to seek help in getting out of debt spiral.
     
  10. Christavia

    Christavia New Member
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    It really depends on the circumstances and terms and conditions of the loans. I worked in a loan company for years and I have seen where several persons came in for debt consolidation loans. It does help depending on the terms of the first loan. If it is that interest is accumulating faster than it would on a new loan, then might as well take it. Also, instead of passing the due payment period and spoiling ones credit score, it makes sense to consolidate and start anew with a different loan.
     
  11. filmjunkie08

    filmjunkie08 Active Member
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    I have done this before, but it is nerve racking at the same time. It did get out of control and have paid the consequences with a lower credit rating. However, life is uncertain. You never know what the future holds and if taking out loans to pay a loan gets you through a rough time, then do it. Credit ratings can be healed.
     
  12. lexinonomous

    lexinonomous Member
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    I would never take a loan in order to pay off another loan. This is one of the worst ideas I can think of. I have been in situations where I've bitten more than I can chew. I've spent tons of time trying pay off my current credit card debt. I can only imagine what kind of trouble I would get into if I were to take out a loan to pay off another. At the end of the day, I would have to pay off the loan I took out to pay my current loan. If I don't have the money to pay off my current loan, I think it's safe to assume that I could not pay off my future loan. It just sounds like an incredibly bad idea.
     
  13. OfTheEarth

    OfTheEarth Member
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    If I expected to be in debt for a while and one had a better interest rate, absolutely. It'd be like investing more than taking out another loan, and my credit would improve in the meantime (in theory, at least).
     
  14. crmeche2

    crmeche2 New Member
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    To me, going into debt by taking out a loan goes against the idea of self-sufficiency. There are plenty of ways to make extra money, especially on the internet. Creating a little extra cash flow and using that to pay off debt takes a little ingenuity and lots of work, but it can be done. Once you pay off your debt, you can use that money to prep and to save up. Personally, I would think about what skills I possess and put those to use (ex.- sewing, tutoring, etc.). This is what I did to pay off my student loans- I mowed lawns, I built wooden bird house, you name it to make extra cash so that I could get out from under that burden. I didn't want to be dependent on anyone for my financial security.
     
  15. cluckeyo

    cluckeyo Well-Known Member
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    The answer is YES! If you can get the second loan on better terms. There are all kinds of balance transfer offers out there where they take on your credit card debt and give a year or 18 months to pay it off with 0 interest. These are real offers that come in the mail and they work great. You can get out of debt much quicker with an deal like this!
     
  16. Lisa Davis

    Lisa Davis Active Member
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    The only way that taking out one loan to pay off another is if the second loan is less interest than the first and the fees (if any) that are associated with the loan are not so great that you wouldn't be saving money in total on the cost of the loan. Even then, it is best to be debt free ultimately and as quickly as possible.
     
  17. Toast

    Toast New Member
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    I think it depends who you owe the first loan too, and who would be collecting your second loan. It'd be useful to take a loan from a family member you can trust, so you can pay off like a bank loan that has a lot of interest. It's always tough, because it can cause strain between the loaner, and the loanee. You always have to be careful about paying off your debts quickly, if you don't want to be seen as a bad guy, and you want to keep your relationships. Overall, I think it's just better for everyone if you can pay the first loan off without much assistance, hopefully none. That way you don't owe anyone anymore, and you can get on with your life.
     
  18. joshposh

    joshposh Expert Member
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    It's all about interest rates. If the second loan interest rate is less then the first, then go for it. In the end you will save money.
     
  19. Bonzer

    Bonzer New Member
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    I'd say yes. However, it takes a lot of diligence, fiscal discipline, a lot of planning, and time. A fresh loan with a low interest would give you money and time and the much-required breather. You can purchase time with a fresh loan and do away with a bad loan with a bad interest rate. It's essentially rotating your finances intelligently.

    This strategy could help you consolidate all your loans if you are intelligent, hardworking and disciplined. It could easily backfire if you lack the fiscal discipline or are a compulsive buyer. Best of Luck!
     
  20. crimsonghost747

    crimsonghost747 New Member
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    Exactly. Usually people think that it's a horrible move to take a loan to pay an existing one but sometimes it can save considerable amounts of money. Now, with the interest rates being what they are, is a good time to check if you can do this.
     
  21. harper

    harper Active Member
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    This has happened to me more than once. I had to borrow from a friend to pay off a loan I made from a small loans agency. The thing about small loans is that they charge really high interest rates. If you choose to delay your payment, you will have to deal with such a steep interest rate. Late payments are definitely not worth it.

    I think if the situation calls for it, you might have to tap as many people as you can to pay off a loan. It's not a sound financial management practice, to be honest. Every accountant, financial expert, or your mom would say the same thing, but between incurring a big, useless interest and borrowing from someone to pay early, borrow makes for a better option.
     
  22. FuZyOn

    FuZyOn Expert Member
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    For a survivalist I think he/she needs to be debt free, I wouldn't want to worry about that everyday while I need to focus on surviving. As for your question.. I've seen people take a lower/no interest loan to pay off another and I don't think it's a bad idea if you can afford to pay off the loan you just took, otherwise you're going to be stuck in a vicious circle.
     
  23. QtheMyst

    QtheMyst Member
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    Small loans like payday loans are a really terrible idea and can suck you dry with the interest and fees very quickly. You are better off with almost any solution. That said, if you can find a way to get a loan with a better interest rate than the one you currently have, this might work. In general I feel avoiding debt is good, I try to never take out loans and only use my credit card for essentials and pay it off each month. I suppose if I knew the apocalypse was coming I wouldn't have to worry about this but who knows what the future holds?
     
  24. Iohndee

    Iohndee New Member
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    A loan is essentially money that one borrows from a financial institution and is repayable at an interest for an agreed period of time.

    In most cases, depending on the amount, you will require a collateral which will be in the institution's custody. In case you default on repayment, the institution shall auction it to recover their money.
     
  25. DaBozzLady

    DaBozzLady Member
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    As said previously, I agree with the yes if it provides some sort of relief. I was in the vicious payday/loan borrowing cycle for about 2 years due to being on fmla (fine for a year due to my savings and 401k) and a family crisis. It can drive you insane because of the constant calling and/or access to your personal information. And especially if you just plain don't have it. Even if the second loan is better in terms of interest, there's still no guarantee. Because the reason is your finances. If you don't necessarily have the money to pay off the first loan, then more than likely you don't have it to pay off the second. What you are doing is putting yourself in more debt.

    Getting into any financial agreement requires positive action to counteract the negative transactions. When I got out of my family crisis, I was only able to recover by getting two jobs, working crazy hours all the time. So it takes discipline. Instead getting a second line, I would look into other means of income like a second job, a temporary job, etc. Making money on your own will be worth it in the end instead of using all your money to pay back another. And like it was said earlier, if you are focused on debt, you can't be focused on other things like living your life or preparing yourself when SHTF. #SOTRUE
     
  26. Eric Graham

    Eric Graham New Member
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    Never. I got into some bad trouble back in the day with taking money to pay off other money and all it does it set you back even farther and then owe to multiple people. Pay off what you need and then save for the future. That is always my plan. I would rather have to wait to buy what I need than buy what I need now and have the stress of owing others. If you are in a really bad spot and have to then I guess you don't have a choice; however, don't do this unless you are in dire straights.
     
  27. willywonka

    willywonka Member
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    I wouldn't, but I could see if I did it to manage 3 or 4 payments that I couldn't keep up with. Then that way I only make one payment a month instead of 4 here and there. It is so easy to fall behind. Just make sure that you have a great interest rate.
     
  28. neoKit

    neoKit New Member
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    No, I have never tried to borrow a second loan to repay first one. Where will you get the money to repay the second loan? Without a proper plan one is not supposed to borrow any money. If one can take a loan to go for a vacation then that is wrong. Business loans require you to repay as you continue to make profits and not making a loss to rely on a second loan.
     
  29. Iohndee

    Iohndee New Member
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    Let me say that I won't rob Peter to pay Paul, neither am I going to dig a hole to fill another. If I'm unable to repay a current loan, what reason do I have to service it with another which I also will not be able to repay?

    Not unless my fortunes are about to change. And even then, if I'm certainly excepting a windfall, I'm better off negotiating with the institution I owe rather than go through a cycle of debts.
     
  30. lonewolf

    lonewolf Moderator Staff Member
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    paying off a debt by taking on more debt is a bad move, whatever the rates are, UNLESS by paying off one debt it means you are in a position to pay the other loan off too! if so then this is a prudent move, but if your just replacing one debt with another I cant see the point.
     
  31. My3Sons_NJ

    My3Sons_NJ New Member
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    The answer is YES if the rate on the new loan is substantial (> 7%) lower than the rate of the current loan. I have done this multiple times (take out a home equity loan to clear credit card balances) and it saved me hundreds of dollars a month each time and the interest on the home equity loan was tax-deductible as an added benefit. As long it is a 1-1 rollover (i.e. taking out a $20,000 loan as opposed to a $8,000 loan for $8,000 of debt), paying off the higher-interest debt through this method is generally quite advantageous.
     
  32. lonewolf

    lonewolf Moderator Staff Member
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    being a prepper and being in debt is counter productive, you are servicing the debt when you could be adding to your preps.
     
  33. ziskasun

    ziskasun New Member
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    Getting out of debt is a worthy goal. Taking out another loan to pay an existing loan is almost always a bad idea. Debt, in general, enslaves you and keeps you dependent on banking systems. People are often paying back 2-3 times what they borrowed especially when you only make the minimum payment. There may be other better ways to pay off a debt, such as taking on additional jobs to earn extra money to pay off the loan or selling things. There are websites such as Go Fund Me where people solicit donations from others for a variety of reasons. Hope this helps.
     
  34. CivilDefense

    CivilDefense Expert Member
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    If there was no other option, I suppose I would. But there is a reason why we avoid debt like the plague. Rather than spending money on interest payments to make someone else rich, I prefer to invest our resources and reap the rewards. Having your financial house in order, living debt free (or close to it), and having plenty of financial reserves is a huge part of being prepared for a disaster.
     
  35. Nela Civobeg

    Nela Civobeg Member
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    This kind of loan save my parents back in the time when they had a bank loan in foreign currency due to banks not offering loans in our own currency at that time. They had their loan in CHF, but after some time banks finally got our own currency to loan, and they took another loan to pay of that one and stabilize the income / debt per month because it was getting more costly each month due to sudden rise of CHF. So, it wouldn't be a bad thing, depending on the situation.
     
  36. CivilDefense

    CivilDefense Expert Member
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    What institution is going to offer an interest free loan? That is exceedingly unlikely.

    To answer the question, maybe, if that is what is required. It isn't a situation one should get themselves into, of course.
     
  37. WildSpirit

    WildSpirit Active Member
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    Not, by the simple logic that using a loan to pay off some debt is the same as not doing anything. It's like running from a snowball that you created (and that ball is going to grow with every step you take).

    I've seen many friends take loans to solve financial problems, and all they have to say about it comes down to "regrets" and "frustrations". :eek:
     
  38. CivilDefense

    CivilDefense Expert Member
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    I'd generally agree. And our household does not take on debt. However, in some cases the new debt could be a lot less toxic (e.g., lower interest rate, better terms, etc.), so in theory it might work. It is still a bad situation anyway you slice it.
     
  39. Nela Civobeg

    Nela Civobeg Member
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    It largely comes to the banks as well. If you are promised a stable rate, low cost per month and it turns upside down by rise of currency, its not your fault. Especially if you studied currencies and they were stable all the time. Taking a debt that is 100% sure it wont have drops or increases to clear the mess is not a bad thing to do. Like I explained earlier, my parents had the same issue. Due to bad banking and our country not having certain rules on banking and taking loans back in the time, you could only take big loands with foreign currency. Quite interesting, isnt it. Now, after things went to hell, they finally realized they need to tell the banks to use our own currency. Took them long enough. Our monthly debt for the car we bought back in the 2006 jumped by more than twice in the price. So, only way to deal with the situation was to get another loan and have a promised monthly wage to pay, and not something that might jump 5x more in value.
     
  40. amelia88

    amelia88 Well-Known Member
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    I think if it was significantly less interest, then yes - I'd pay one loan off and transfer that balance to a new loan with better terms and conditions. In saying that, the best practice is ultimately not getting into debt over one's head, anyway. I always try and remind myself that buying what I can afford is a much better strategy than taking out a bunch of loans.
     
  41. Old Geezer

    Old Geezer Legendary Survivalist
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    You as a citizen or a business cannot take a loan to pay off a loan. Indeed, in many jurisdictions, it is illegal to attempt to do so.

    If you are a government however, go ahead and take out a loan to pay off a loan you took out to pay off another string of loans. Western nations are now in a death spiral of borrowing "money" into existence. The major banks of the West are allowed by law to hide the true status of their economic condition from the public. Were their true leveraging revealed and were the true worth of their "assets" made known, citizens would stampede to the banks to get out what they could before the government locked the bank doors. Here in the United States, insurers of banks and savings & loan institutions, FDIC and FSLIC, can only cover a petty little fraction of the citizenry's deposits.

    There are two ways to live: 1) Pay off your debts and live withing your budget. 2) Go flagrantly, catastrophically in debt -- "You can't get blood out of a turnip."
    .
     
  42. lonewolf

    lonewolf Moderator Staff Member
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    borrowing another loan to pay off a previous debt is at best merely a delaying tactic, at some point the debt will have to be repaid.
    best to not get in debt in the first place, if you want something that badly then save up for it, not easy in these days of instant gratification, but its the best way, probably by the time you've saved up the money you've gone off the idea.
    servicing a debt is not a prepper thing.
     
  43. lonewolf

    lonewolf Moderator Staff Member
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    i repeat servicing a debt is not prepping.
     
  44. Nela Civobeg

    Nela Civobeg Member
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    Sure you can. My parents did it. All legal. You get the money to pay out the first loan completely and than you end up paying the second loan which covered your first one entirely.
     
  45. Old Geezer

    Old Geezer Legendary Survivalist
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    The consolidation of debt is a tactic some use. Debts are paid off, leaving one huge loan. Stringing out debts is bad business and in some areas illegal -- especially if you attempt to hide this activity from your creditors (it's called fraud). Getting into this situation bespeaks bankruptcy.

    My dad got into loan sharks. His activities existed on the "wrong side of the tracks" in the first place, however. The men in my family had a tendency to do whatever they wanted whenever they wanted however they wanted. Great guys, but I'm not comfortable living like that. Their friends had a marked tendency to end up in jail, to include the regional federal penitentiary. Not my game. Get educated, gather skills, don't gather psycho-"friends", stay in the legal market. Only if the government becomes a pack of felons, should you fall outside the "law".

    Pay off your debts. Live within your means. Quite frankly, I'm not high-maintenance. I'm happy with what I have. More would be fun, but then I'm an adult -- should be at this age. I'm rather tired of the world, quite frankly.
     
  46. lonewolf

    lonewolf Moderator Staff Member
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    this is a survival and prepping forum, if you want to talk business loans I suggest you find a forum that deals with that subject, this forum was started to discuss ways of surviving SHTF and the collapse of civilisation, not how to start a business.
     
  47. Anniee

    Anniee New Member
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    Well, if you are in a dire financial constraint, you don't just run to those financial institutions without consulting your family members and friends. You may be lucky to have someone who can loan you something to hold yourself together. If not, try applying to menial jobs and the likes. I rather go house to house and seek for laundry jobs than to take loan from a bank or any financial corporation. They are huge rip-offs. Their managers and workers work on a target, so they won't hesitate to strange you. Taking such loan is just compounding your problems.
     
  48. Scarlet

    Scarlet Member
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    I would take a loan to pay another if the interest is low because it will save me from paying a big interest if the other loan has big interest. Another thing, I usually loan if I can loan a greater amount to pay the other loan because I will have something left and maybe invest the remaining money.
     
  49. explorerx7

    explorerx7 Expert Member
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    Probably the best thing to do in a situation like this is to arrange for for a new lender to pay off the existing loan. Under this new loan arrangement, you would use the property as a guarantee for the new loan which would probably allow u smaller installment rate but you would have a longer repayment period. This would prevent your property from being auctioned.
     
  50. lonewolf

    lonewolf Moderator Staff Member
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    its a stupid subject- taking on another debt to pay the first debt, I know people do do it but they are sheeple what do you expect?
     
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