New Delhi: We often have to take loans to fulfill our needs. Many times we borrow from acquaintances or have to take a loan from a bank or any other financial institution. Some people take more than one loan out of compulsion.

In such a situation, sometimes a thought comes to mind whether it would be better to clear all the old debts by taking a new loan. Let's know the answer to this.

Is it right to take a new loan to repay the debt?

Taking a new loan to repay the old debt is justified only in certain circumstances. Now, for example, you have spent more money on the credit card and have to pay 30 percent interest on it after the due date. To repay this, you can take a personal loan, the interest rate of which will be around 15 percent. Always keep in mind that take a new loan to repay the old debt only if the interest rate of the new loan is lower than the old loan.

Disadvantages of taking a new loan to repay the loan

You can get caught in a never-ending debt trap. You will always need to take out another loan to pay off one.

If the new loan becomes costly, your problems will increase, as will your debt burden. This can put your financial stability at risk.

Fresh personal loans also come with additional charges like origination fees, prepayment penalty, etc. This can increase the burden on your loan amount.

If you take loans repeatedly, it can also spoil your credit score. Then it may be difficult for you to take a loan in future.

If you take a fresh loan and delay its repayment, there are high chances that your credit score may go negative.

You can implement these measures

You can combine all your loans into one loan. If you get the facility to pay a lower interest rate, it will be even better for you.

You can manage your budget better. By reducing your expenses, you can save more money to repay your debt.

You can also talk to your lender. If they can provide loan waiver or any kind of concession, it will be better for you.

You can also consult a professional debt counsellor. This can help you make a better plan to repay your debt.