What is debt consolidation and how it works?
Published on 2021-09-08
Category: Business Loans, Small Business Owners
Debt Consolidation: A way out of multiple loans
Paying back multiple loans might feel difficult and often times strenuous, to say the least. The instalment deadlines pile up, varied interest rates, different repayment amounts and a lot of paperwork. It puts an extraordinary amount of strain on you and gives you less control over your finances.
What is debt consolidation?
Debt consolidation refers to the practice of narrowing down all your loans like credit card debt, store cards, and additional personal debts into a single loan. With debt consolidation, you would not have to chase multiple deadlines and keep track of different interest rates. Following the debt consolidation process, your new and only loan might have lower interest rates, this will mean paying a single annual fee or none.
With all your loans integrated, you’ll have one deadline and only one interest rate.
Is debt consolidation good for you?
- Prioritising Loans: Having to decide which loan to pay off first can be tricky? Is it going to be a personal loan? Perhaps you want to pay down the credit card debt you have amassed over the years? Ask yourself if you can deal with both loans simultaneously?
- Burdensome rates of interest: Debts on your credit card, for example, are much higher than a debt consolidation loan. So, it is more expensive to have a large credit card balance than to have that money on a consolidated debt.
- Friendlier deadlines: It is a nightmare should you ever forget your many repayment deadlines on say, your credit card, pay later purchases, or a loan on your car. However, this nightmare scenario will be put to rest under one personal loan.
How to consolidate your debt
- Doing the math: Calculate the amount you would need from the lender to pay off the sum of all your debts.
- Doing your Homework: Banks and online vendors offer a variety of schemes. Compare the terms offered by the vendors to see which plan suits you.
Pay close attention to hidden fees:
- Application Fees: you may be charged a fee upfront administration and credit checks that assess the risk involved in your loan approval.
- Ongoing Fees: You might be charged a small additional fee with the monthly payment. It might seem like a small amount at first, consider the aggregate fee you would have paid over many years.
- Flattening your loans: Once the loan you applied for is approved, you can payout everything from credit card debt to car loans.
- Repayment schedule: Now that you’ve slimmed down your repayment schedule to just one loan, adhere to the schedule till your balance is paid completely.
Debt consolidation might be the financially healthy route you need. CapitalBoost helps you navigate the multitude of options after a thorough examination of your finances.
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