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Stop Borrowing Money to Pay Outstanding Debts


This is a guest post from my fellow finance blogger, Jonny. While I don’t agree with some of the tactics within this article, I thought it might spark some interesting conversation. Is there anything within this post that you don’t agree with?

Sometimes people take out a loan like a line of credit or a home equity loan to pay off their personal unsecured debts. At times, they are unavoidable options to get rid of huge debt burdens, but borrowing money for paying off debts can’t be a considerable solution. Unless one can stop borrowing money to pay off debts, he can never get out of his debt obligations.

How to stop borrowing money to repay debts

There are number of effective ways following which you can avoid owing debts as well as borrowing money to pay off debts. Some of them are discussed here.

  • Pay upfront – Don’t get tempted to owe debts for buying depreciating assets like appliances, furniture and home refashioning. These things don’t add any value to your home. Moreover, retail shops often charge higher interest rates. Even if they offer no-payment facility for some months on a purchase, you should pay for the item in full with higher interest rate, once the period is over.  Therefore, it would be better if you can pay upfront in cash instead of using the notorious plastic card, or grab the no-payment facility.
  • Take short-term loan– If a home modification or improvement (like, constructing a new room or renovating the toilette) adds value to your home, then you may take out a loan, but only on a short-term basis. Short term loans generally come up with lower interest rate.
  • Take out home equity loan – If you’re deeply down in high interest unsecured debts, you may think about taking out a home equity loan. A home equity loan generally charges lower interest than that of most credit cards. Moreover, you can deduct the interest on first 100,000 USD you pay towards the loan taken out for non-housing expenses. When it comes to taking out a home equity loan, make sure you can pay it back in time. If you fail to pay back the loan, you may lose your house.
  • Avoid borrowing from 401(k) plans – Once you borrow from your 401(k) plan, you may lose the opportunity of tax-free compounding of your savings. You’ll also lose tax-deductible savings. In addition, if you quit the job, you employer may require you to pay back the total borrowed amount within a span of three months. Otherwise, you’ll be penalized or owe income tax on that amount.
  • Don’t accumulate a balance – Even if you take out a loan to pay off credit card or any other unsecured debts, make sure you don’t run up the balance once the debts are paid off.

If the debt problem is chronic and severe, you must get professional help. You should consult a debt counseling agency that can help you get out of debt burden and manage your personal finance efficiently in the future.

Jonny: My experience, knowledge and network of financial professionals makes me a more valuable resource for individuals and small businesses, I am trying to improve their current financial position as well as their future prospects. Check out my blog on personal finance and budgeting.



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. If only people read this before their debt began. Ironically this post is for those who might never find it because they aren’t looking.

  2. Indeed. Paying off credit card debt with a debt that has a lower interest rate can seem like a smart decision, and it is, but that’s only part of the solution.

    As you say, this only works in the long-term if you can eventually stop paying debts with other debts.

  3. It’s important to note that not all debt falls into these catagories. I’ve taken on only two debts in the last 6 years.
    This year was the loan for our mobile home. Yes, mobile homes depreciate, but we are now paying less than we did in rent (and we rented a smaller place than this trailer!)
    Last year was the $3000 not covered by insurance for an emergency surgury. We had no way of paying that off in a timely manner and the only mechanism the hospital had for making payments was to offer a loan underwritten by a local bank.

  4. This seems like sound advice to me. I think the most important factor for borrowers to consider before taking out a HELOC to payoff unsecured debt, is whether their financial habits have changed. If not, they’ll put their home at risk unnecessarily and rack up more unsecured debt.

  5. I took out a HELOC once to pay off my primary mortgage principal. The HELOC was at 3% and the primary mortgage Principal was at 4.25%!

  6. Convincing a lender or “loan officer” that you deserve to borrow money quickly can be quite the task. Most lenders are wary about lending out to individuals that have poor credit, and a low income. There are a few measures you can take to convince a lender to let you borrow money quick, without any additional questions or problems.

  7. As with all advice you have to take into account your specific situation. In general, if you’re going to keep growing debt then consolidating probably isn’t going to help you. However, if you’ve kicked your habit for good then consolidating or negotiating may be a viable option to help you save some money.

  8. Hello,

    Everybody knows these tactics of getting relieve from the debt burden. You can say it like ‘old wine in new bottle’. But this is 100% true that unless you stop borrowing, you can’t ever get rid of debt burden. Every person has his own individual situation and thus the way of debt relieve. However, I’m sure there is something for every debtor in this article. The debtors will surely be benefited through one method or another.

  9. I agree with Jonny. You can never get out of debt if you keep on borrowing. In that case, borrowing has become a habit. And you can only get rid of a bit by replacing it with a new one. And that would be the habit of saving.

    The best process that one should do is/; create budget–> pay more than the minimum–> live within your means.

    I have nothing against credit card as long as it is properly managed.

  10. Thanks for mentioning the guest post, Jonny! Agreed, you gotta watch out for the trap of just taking on more debt, when you originally intended to lighten up the load.

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