Should You Borrow More Money? A 4-Step Financial Evaluation

Review this four-step system to evaluate if borrowing more is best. (iStock)

The decision to take on debt should not be considered lightly, but with unemployment currently just above 8%, many Americans are struggling to pay bills. For many, additional credit from cards and loans may be the only way to keep the lights on and put food on the table.

Fortunately, for those with decent credit, a variety of personal finance options for additional funding exist. Websites such as Credible, offer a number of credit cards and personal loans from different lenders, but also options to restructure debt and refinance student loans and mortgages in order to lower interest rates and impact the household’s bottom line.

If you’re debating if more debt is the right option, here's what you should do first.

1. Trim your budget
2. Take stock of your current situation
3. Explore refinance options
4. Consider a debt consolidation loan
5. Consider a balance transfer credit card

1. Trim your budget

Before taking on more debt, trim your household budget to just the essentials: food, housing, and utilities. Temporarily pause subscription services and payments to retirement plans. For student loan borrowers, the CARES act provides relief through the end of December 2021; zero interest on current debt and a suspension of payments, which frees additional cash each month.

2. Take stock of your current situation

Depending on your financial situation, taking on debt may be unavoidable. But if you can get by without taking on more debt, take a break.

Here’s why: because of compounding interest, taking on debt to make payments in the present is only delaying the inevitable. Eventually, you’ll end up with double the payments and double the interest and still endeavor to meet the higher monthly minimums. The best approach is to speak directly with your lender about repayment and forbearance options.

3. Explore refinance options

There is a common misconception that refinancing debt is just for lowering an interest rate, but refinancing can also reduce the total monthly payment on a debt, which could be the key to staying afloat without borrowing more money.

Refinancing is not a one-size-fits-all financial product. Lowering your monthly payment will depend on your terms and interest rate, and these vary by lender.

To evaluate student loan refinance options, you can easily shop multiple rates and lenders by visiting Credible for more information.

You can also explore mortgage refinance options and compare rates and lenders using Credible's free online tools.

4. Consider a debt consolidation loan

A debt consolidation loan is the one “debt” option that actually doesn’t add any more debt to your bottom line. Instead, debt consolidation allows you to pay off multiple debt accounts with one loan, and then pay on that one loan each month.

If you decide debt consolidation is the right step, it’s important to shop around for the best type of personal loan, rates and terms. Fortunately, Credible makes it easy to compare loan rates and companies.

You can also take advantage of an online personal loan calculator to determine costs.

Debt consolidation is a popular option for student borrowers who have multiple loans with different servicers, but it can also work for high-interest debt like credit cards.

Benefits to debt consolidation include ease, but consolidating can also net borrowers a lower combined interest rate, more competitive monthly payment, and extend the term of their loan should they need more time to repay.

4. Consider a balance transfer credit card

If you're running out of options, a balance transfer card may be the one for you. A balance transfer card can extend the term for which you have to pay off the debt and ensure your existing balance does not accrue more interest in the interim. With many cards offering promotional balances between 12-18 months, this is a great stretch of time, especially considering the effects (and length) of the coronavirus pandemic are still unknown.

Compare some of the top balance transfer cards side by side and pick the right one for you through Credible's multi-lender marketplace.

However, credit cards come with high-interest rates, which is why the “balance transfer” option is the last on this list. Balance transfers should be the last option you investigate before taking on more debt.

A 0% balance transfer offer may look enticing on the surface, but after the promotional period, the rates go back, often upwards of the current average of 14.52%.

If you must take on debt, getting the lowest interest rate should be the top priority. To ensure you’re getting the most competitive rate, be sure to get rate quotes from at least three lenders. You can either call or email lenders individually or easily shop rates with multiple lenders through Credible.