How to Avoid Falling into a Perpetual Borrowing Situation

Having to deal with a loan is bad enough on its own. But when you constantly keep finding yourself borrowing again and again, this is indicative of a bigger problem. It’s not always easy to identify what’s wrong in those situations – especially if you’re not very experienced with money yourself. But analyzing what’s happened and trying to make some sense of it all is crucial if you want to prevent this from happening again in the future.

Avoiding this further down the road is actually not that hard – but you have to be able to look at your situation objectively. And that’s what people tend to have problems with the most. Being honest with yourself is a skill you’ll have to master separately, and while it’s beyond the scope of this article, you should put some time into it whenever you can.

How It Happens in the First Place

Usually, having to take out multiple loans in succession can be traced back to one or a few irresponsible decisions at the start of the cycle. The key word here is that it happens early on. Afterwards, things just snowball into a more major situation that becomes progressively more difficult to bring under control.

Also, people often overestimate their abilities to pay off the loans they’re taking out, resulting in having to cut corners over time. But as those cuts start to stack up, you will sooner or later run into certain issues with your lifestyle that will push you towards taking out even more loans. And thus, the vicious cycle continues.

Common Mistakes to Avoid

First, avoid taking out a loan if you have other options. Sure, it’s easier and more accessible than most other things you can do to get out of a bad financial situation. But that’s also the reason why so many people find themselves in trouble as a result of taking out loans in the first place. Whenever you’ve made the decision to borrow money, it should be your only available option, the one you resort to after exhausting all others.

If you find yourself thinking of taking out a second loan to cover an installment on the first one, it’s time to take a hard step back and figure out what’s going on. This is often the point where things start to get really bad, and the time to pay more attention to your financial situation and habits.

Know Your Options

As we mentioned above, taking out a loan should be a last resort option that only comes after you’ve run out of alternatives. Check to see if you can’t borrow against any long-term savings accounts that you might have, such as your retirement plan. Sometimes you might be able to get some of that money early in the form of a loan, but keep in mind that it might have harsher interest rates and other factors.

Borrowing from friends and family is also something you should not disregard as an option. It’s not ideal in terms of the awkwardness it creates, sure. But it’s far less ideal to be in a desperate financial situation that you can’t climb out of.

Don’t Borrow Too Much

Just because you’ve been approved for a loan doesn’t mean that you should go wild on borrowing as much as you can. In fact, try to minimize the amount that you’re getting, and always prioritize cutting out some of the expenses that you need the loan for, over getting a larger loan. Many lenders will make it very easy to get your hands on large sums of money, but this is a double-bladed knife.

Unless you’re absolutely confident in your ability to repay those loans, getting a larger one than you were initially planning is a recipe for disaster. Don’t be tempted by promises of lower interest rates and other attractive features. Keep your eye on what truly matters – using the loan to fix a problem that you’re having.

Get Ready for a Few Tough Weeks/Months

And in the end, sometimes preventing this from happening again in the future comes down to one simple, but uncomfortable truth. Perhaps it’s time to tighten your belt a little and become more conservative in your expenses. Sure, it’s unpleasant – anything that you can cut out from those expenses is likely something that you’d rather not lose in the first place.

But having to deal with growing debt with no viable way out of the situation is far, far more unpleasant. And it’s surprising to see so many people preferring the option that provides short-term gratification, rather than making the adult decision to fix things in the long run. It will be bad for a few weeks, but you’re definitely not going to regret the feeling of relief that will wash over you afterwards.