Debt consolidation is the combination and integration of debts into a single loan to lower overall interest rate.
With debt consolidation, business owners can be able to deal with a single lender and a set of loan statements and make only one monthly repayment instead of several repayments.
Understand current repayments
The first step is to compile all credit statements, loan statements, and bills. This will help you understand the scale of your debt.
Categorise debts in order of priority
Understanding which specific debts need immediate attention will help business owners decide which ones need to be paid immediately and which ones can be put off.
It is okay to consolidate some debts and exclude others.
Compare debt consolidation options
Compare the interest rates, charges, and terms and conditions of all potential debt consolidation options to identify the most suitable option that follows your debt repayment plan.
Design a plan/approach
Work out a debt management plan with creditor(s). Make sure that the plan is manageable and ideal to the business situation and debt repayment responsibilities.
Work out a budget that is practical since it helps ensure that the debt consolidation repayment plan suits the current circumstances. Figure out the amount of monthly payments and stick with the repayment plan until the debt is fully paid off.
Make extra repayments
Make additional repayments, if allowable, as often as you can. This can pay off debt faster.
However, make sure that there are no additional fees for additional repayments, lump sum payments, or advanced repayments.
Benefits of debt consolidation
The benefits of combining several debts into a single loan are:
- Single repayment: It is easier to manage and attend to only one lender with a single point of contact. There will also be less paperwork involved.
- Easier to budget for loan repayments: Instead of managing several separate repayments at various times of the month, only one repayment is required.
- Cash savings: Business owners could enjoy big savings on the monthly repayments.
- Lower fees and charges: There is a possibility of saving on loan fees and charges by only paying one set of fees and charges instead of paying several sets of ongoing fees.
- Reduce interest rates and monthly repayments.
Tips on doing debt consolidation
Consider these tips:
- Figure out which debt consolidation method is right for the business’ budget.Speak with an expert when it comes to securing the best deals since there is an extensive array of loan options or balance transfer schemes.Be consistent and disciplined when it comes to repaying debts and resist the urge to make new purchases once the debt has been paid out.
- Make extra repayments to boost interest savings.
- Stick to a spending budget to avoid accumulating more debt.
Debt consolidation often looks like the best solution to everyone’s debt problems. However, keep in mind that it may not suit all business circumstances. But if debt consolidation is indeed the best option for you, remember to cut down unnecessary expenditures to avoid experiencing and repeating a similar debt situation.