It goes without saying that you will need to do debt consolidation right to protect your business from running into huge debts as well as save it from further issues even after taking out a debt consolidation loan. For this, you will need to know when debt consolidation may help you and when it will not in the first place.
Debt that is a common occurrence of all business and even individuals in this modern world needs to be handled with care and concern. It is not only necessary to make it fulfill your purpose but also ensure that you and your business do not get back to the same position which you desperately wanted to overcome and avoid.
- To make debt consolidation work for you the first thing that you must make sure is not to take on more debt than you can afford even if you are eligible for it. Therefore, make sure that the monthly payments of these loans do not become more than you can manage considering the current income of your business.
- The next thing to do to make this loan work for you is to take it from a reliable company or a bank if you are eligible. Therefore, think carefully and do your homework before taking on this strategy.
Remember, a debt consolidation loan can end up harming you and your credit score in the long run if you do not repay it on time or fall into the trap of a scam company.
Methods of debt consolidation
Another way to make debt consolidation work to your favor is to know about the different methods and select the best one suitable for your purpose.
- Assuming that you have started off your business using a specific credit card and running it using different others, you will surely be in a mess keeping track of all these loan accounts. Defaulting in one will lead to a lot of trouble as credit card debts carry a high rate of interest. The best way is to consolidate all your credit card payments into a single new credit card through balance transfer. Ideally, a new card will charge little or no interest for a specified period of time.
- You can also take out a debt consolidation loan from a bank, a credit union or a debt consolidation service if you qualify.
- Taking out a home equity loan is the third feasible and an excellent form of consolidation of loans for some people because the interest on it is usually tax deductible if you can itemize deductions.
- There are also several other federal government and free debt relief options but make sure that you work with an expert and consolidate your all debts with the help of that company to be safe and sure about your success.
- If you do not qualify to get any type of loan straightaway then you can follow another approach for debt relief. You can work with a debt relief organization or any credit counseling service. They will not make actual loans but instead will help you to renegotiate the terms of your loans with your creditors. However, this approach may affect your credit score unlike a debt consolidation loan and the service provider may also charge a substantial initial and monthly fee.
However, to make your approach productive and select the best method to get rid of your debt, carefully research about the organization, shop around for the best deal, rates of interest, origination fees, flexible payment schedules and others.
Consider a few factors
You must also carefully consider the advantages and disadvantages and other factors of consolidating debts before you go about it and choose the right approach.
- Usually, these loans will carry a lower rate of interest but as the loan tenure is extended, overall you may have to pay more in interest. Remember that by stretching the time limit the debt consolidation firms make the maximum profit.
- You must match the solution you choose along with your spending psychology, your financial habits, and situations. If you cannot control your spending behavior you will take on new debts and dig yourself deeper into the debt hole.
- Save enough money every month so that you never fail on repaying the consolidation loan that you have taken out. It is only then you will be able to improve your credit score comfortably making lower payments every month.
- If you have any extra cash in hand after paying off your multiple debts with your consolidation loan, take advantage of it and make some additional payment toward the principal amount beyond the minimum payment. This will bring down your balance faster.
- Know about your debt-to-credit utilization ratio and never use it up to the maximum as the credit bureaus monitor this ratio very closely irrespective of the type of loan. If you use less credit than what is available, it will reflect your financial stability and will once again help you to improve your credit.
Therefore, the bottom line is that debt consolidation loans can be a very useful tool for your business if you are a responsible spender, have a sound business plan and a solid and foolproof budget to follow, can anticipate a rise in your revenue and incomes in the future.
On the other hand, if you do not have any of these qualities then a debt consolidation loan will only mask the problem. You will find that this useful and effective short-term solution will turn into a long-term issue and will result in a stressful financial situation as you were in before taking out this loan.
Fortunately, the process and result of debt consolidation is not as complicated as it may seem but for that you will need to know where to go, how much to borrow, how to pay off, how to combine other loans, and what to do to make it a success. Expert counselors and debt advisors are there to help you out in your attempt to get rid of your multiple debts.