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3 Bad Reasons to Take out Personal Loans

Posted September 15th, 2010
by Staff

Those of us old enough to remember the old Popeye cartoons undoubtedly remember the famous line from the character Wimpy, “I’ll gladly pay you Tuesday for a hamburger today.” Wimpy was introduced to the world in 1933, during the height of the Great Depression, which may explain his penchant for trying to take out personal loans to finance his cheeseburger habit.

Of course, Wimpy’s mooching was from his friends rather than a bank, and dealt with relatively low amounts. However, it does demonstrate a really bad reason for taking out a personal loan. Taking out a loan for an item that will be gone long before the loan is paid off is not generally a very good idea, nor is it often one that banks will look favorably upon, unless you have stellar credit (in which case they’ll gladly lend to you for any crazy reason). Here are some other examples of really bad reasons to take out personal loans:

  1. For paying off another loan. Unless you are using the personal loan for debt consolidation purposes, taking out one loan to pay off another is a great way to ensure that you give the bank way too much of your money in interest payments. Not a good idea most of the time.
  1. Paying off guaranteed student loans. Banks are willing to work with you more on student loans than just about any other sort of loan, and it’s not generally a good idea to move out of a loan that you can repay a little at a time into one that you have to pay back faster. If you want to do that, simply double or even triple your payments on the student loans.
  1. Spending cash. Instead of taking out a personal loan, try hitting up the boss for some overtime or taking on a second job part time. Spending cash, for most people, is gone almost as soon as they get it, but you could be a year or more paying off personal loans.

Save personal loans for times when you really need to borrow money, or for things that you wouldn’t be likely to save enough money for. Using them to fill short term needs is almost always a bad idea. If you can avoid taking out the loan, then do so.

Categories: Debt Management



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