Is Taking Another Loan to Pay Existing Debt a Good Idea?
Taking another loan to pay existing debt is usually not a good idea if you are already over-indebted. It increases your total debt, adds new interest and fees, and can extend the problem rather than solve it. If your existing debt is unaffordable, debt review — which restructures existing debts without new borrowing — is generally a more appropriate option.
Key Points
- Borrowing to pay debt usually increases total debt.
- New loans add interest and fees.
- It can mask rather than solve affordability problems.
- Debt review restructures existing debt without new borrowing.
Why borrowing to pay debt is risky
Using a new loan to settle old debts may provide temporary relief, but it replaces existing debt with new debt — often at a similar or higher interest rate. If the underlying affordability problem is not addressed, the new loan also becomes unaffordable.
This pattern — sometimes called a debt spiral — can leave consumers in a worse position than before.
When might consolidation make sense?
A consolidation loan can make sense for a consumer who still qualifies for affordable credit and who uses the loan to simplify multiple higher-interest debts into one lower-interest payment. This requires a strong credit profile and careful affordability.
If you are already missing payments or receiving demand letters, consolidation is usually not viable.
Why debt review is different
Debt review does not involve new borrowing. Your existing credit agreements are restructured into one affordable monthly payment, with potential interest-rate reductions and legal protection while payments are maintained.
For over-indebted consumers, this addresses the root problem rather than adding to the debt.
Frequently Asked Questions
Worried That Your Debt Has Become Unaffordable?
Debt Guidance can assess your income, essential expenses and debt commitments to determine whether debt review may be appropriate.
Reviewed by Carolina Guevara Harris
Registered Debt Counsellor · NCRDC3152
Last updated: 17 September 2025
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