4 Tips to Keep in Mind When Paying Bills Using a Loan

Taking out a loan to cover debt that is costing you more in interest can be a good idea. However, you will need to manage this new debt with great care. In addition, you’ll need to alter your spending to reduce the risk of building up even more debt. Here are some things to keep in mind when using a loan to pay your bills.


If you have a great deal of credit card debt at a high level of interest, rolling that debt onto a 0% APR card can give you two benefits. First, you can reduce the interest rate you’re paying to service the debt. Second, these rollovers have a built-in deadline in terms of the 0% interest. Once that grace period is up, you will need to pay interest on the remaining debt. Your goal must be to pay down the entire balance before the 0% APR is up. Also, most balance transfer cards have an origination fee of at least 3%. If you can pay down the debt very quickly, you may be better off paying the higher interest rate than the origination fee.

Cancel the Old Card

When you’ve rolled over your debt, cancel or stop carrying the previous card. If the card helps you to earn travel or product points, you can use it again once the consolidation is paid off. Take care when rolling debts over to avoid borrowing more than half of your available credit. Cards near their limit can lower your credit rating. Keep close track of when bills are due so there aren’t any bills you’re forgetting.

Only Emergencies

In the event of a job loss or financial emergency, you may need to take out another loan to stay on top of your debts. Carefully review the terms and any built-in deadline, such as a balloon loan payment, before accepting this new debt. Experts advise you should have good reasons for needing a loan. This is especially true if you are borrowing money to cover other debts, as this practice can leave you drowning in debt.

Other Loan Options

If you have a retirement account, you may be able to borrow against it. This can aid you in two ways. There is a low interest rate, and you will mostly be paying it to yourself. In addition, a 401(k) loan is a steady source of income for your retirement account. When the market starts to get volatile, you will actually have a stabilizing source of principal and interest regularly adding to your account.

Any time you use a consolidation loan, it’s a good idea to take a long hard look at your spending habits. If you’re getting in over your head, the sooner you can start scaling back your spending habits and getting your debt under control, the better off you will be. That said, a lower interest rate or consolidation loan to lower your payment accounts can be an ideal option to make it easier to live within your means.

You might be interested in this article: How an Emergency Savings Account Can Protect You from Financial Ruin

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