What to Consider While You Are Consolidating Debt?
Debt consolidation is a commonly discussed topic these days among business owners, entrepreneurs, and many professionals who have a bunch of loans looming up on their head. The stress of handling multiple loans and increasing debt can take a toll on an individual and his/her business. Thankfully, there is a solution that can help! Debt consolidation appears as a knight in shining armor in such situations.
How do businesses end up with multiple loans and a ton of debt?
Running a business successfully and sustaining it requires a lot of money. When you don't have the necessary funds to build your company, you have to rely on loans. Even when you plan to expand your business, your main focus should be on executing the expansion as planned, and not let fund constraints affect your plans in any way. Loans are also required when a business goes through losses. The financial support helps you save your business and recover quickly.
In all these situations, you are compelled to take up loans. And when you apply for quick loans in dire need, you hardly ever have the time, patience, or state of mind to look at the terms, tenure, interest rate, premature closing charges, and the other conditions. Due to this, you enter one or more loans to get cash in any condition for the time.
That is how businesses enter into the debt trap without even realizing it. You keep on paying the multiple interests on all your loans consistently until the flow is disrupted with some kind of financial crisis, or budgeting. It’s then while evaluating your financial condition that you discover that you are actually paying a lion’s share of your revenue or income every month in loan interests or EMIs.
How do you realize that you are in problem with your multiple loans?
When paying off your debts increases your financial problems, and dealing with multiple lenders become a nightmare, you realize that you have made a huge mistake. Moreover, if the business is not running well, and you are not earning enough revenue to sustain the business, pay your employees, and run your all expenses, you feel the crunch gripping you even harder. In such situations, you may pay one loan EMI, and miss another two, or miss all at a row for one or two months, and this kind of irregularity may result in the following:
- Creditor calls from multiple lenders making you go paranoid
- Collection attempts by all lenders at the same time
- Notices of foreclosures and other lawsuits from lenders when you have missed many EMIs
- Most of the money going out the drain through loan EMI pipe
In such a tight situation, any business owner can lose his sanity, and may want to fly away from the situation. But there's a way to get rid of these collection calls, notices, and burden of multiple loans, while saving your reputation. The answer lies in consolidating all your debt.
What is debt consolidation?
Debt consolidation is that process where all your loans are transferred to one single loan account, and instead of paying multiple lenders the varied EMIs, you pay to just one lender who has consolidated your loans. Through debt consolidation, a new financial arrangement is made, where you borrow a large sum of money at a much lower interest rate to pay off your existing loans. After consolidating the multiple smaller loans, your sole responsibility would be to pay off the large sum that you have borrowed from a single lender.
In simple words, it refers to the smart way you close all other loan accounts to start a new loan account with better terms and conditions and suitable interest rate, so that you just have to bother about this one account and pay at only one place per month. This makes debt management easier and helps you avoid missing payments. This process has been a favorable one for most business owners. After reading this, while you are checking reviews before consolidating your debt, you must find out if it’s going to work out for you too.
Managing the credit card accounts maturely
If many of your loans come from the many credit cards you are using, then with loan consolidation, many of your credit card dues are paid back to settle the card balance to zero and usage limit to the highest again. This can be both good news and bad news for you. The good news definitely would be that your old dues are settled. The bad news is that you will once again have new temptations to get sucked up into multiple loans.
Since a credit card usage does not need you to apply for a loan, it’s a readymade ingredient to get you into a debt again. You may use the card to get some cash or buy things, and this may attract multiple debts for you, which may soon get unmanageable for you again. The sensible businessperson would not let it happen by stacking all credit cards together and locking them somewhere and better forget the key. Mature handling of credit cards is the best way you avoid another pileup of credit card loans.
Choosing the right loans to consolidate
As you are checking your options through consolidation companies, you must make sure that you are choosing the right loans accounts for consolidating into one. There may be many loans with high rate of interest, but many may be of low rate of interest and better for you in the longer run. If you consolidate all low and high interest loans into one, this may lead to more repayments. Therefore, you need to calculate well and consolidate only those loans which truly need it.
Isabella Rossellini is a financial advisor, and has been dealing with debt management cases for long. She has a sharp mind and emphasizes on the importance of checking reviews before consolidating your debt. Her articles on the subject are informative and helpful.
Hi Gresham, This is Sujain Thomas, I am a writer and business finance, expert. Recently I came to this post and it’s really nice to read this piece of information about Debt Consolidation. All the points you take in this are really informative. It becomes a trusted source regarding Debt Consolidation. Thank you for sharing it with us. Now I regularly follow your blog. Best of Luck