As stated by www.forbes.com, debt is a significant reason behind the unsuccessful businesses. A business is compelled to take a loan in order to ensure that everything is in a proper place. Without the business capital, it is practically impossible to keep everything in order. However, most of the businesses concentrate only on the various business aspects and they completely forget about the loan that they have taken, until and unless they start getting the reminder calls from the creditors. With the start of 2019, it is crucial that you keep in mind that you have to pay back all the loans as well, and you should be doing it as fast as possible. Even if you are on the verge of bankruptcy, you cannot ignore the advertisements about debt consolidation. However, you need to understand if debt consolidation is the perfect option for your business especially in accordance with the business needs that you have.
Continue reading to educate yourself about the various options of debt consolidation and the advantages and disadvantages that are associated with all of them.
With the help of debt consolidation, you will be able to receive one loan for clearing off the smaller loans that are there. This is going to ensure that you are left with a single monthly payment instead of numerous payments. The theory behind this is that it is easier to manage a single payment as opposed to handling different payments at the end of each month. You need to know that your main objective is to ensure that the rate of interest is reduced along with your monthly payment, which is going to help in clearing the loans faster than usual. You also have to understand that a debt consolidation loan has no similarities with debt settlement. In the case of debt consolidation, you have to clear the entire loan without any negative consequences on the credit score.
Secured loans and unsecured loans
Whenever you are taking secured loans, like a mortgage, you are actually pledging your property, like your car or your home for securing the clearance of your business loan. For instance, whenever you are obtaining mortgage loans, the security for repaying the loan is your house. In case if you are unable to clear the loan, creditors can foreclose the house for satisfying the loan.
Alternatively, an unsecured loan is completely based on the promise of paying and it does not have the obligations to keep your property as a mortgage for paying the loan in case if you are unable to clear it. The perfect example of an unsecured loan is a credit card. Normally, an unsecured loan is known to have a high rate of interest because they are known to carry a lot of risk for your lender.
Debt consolidation through the secured loans
There are numerous options for consolidating the debts by using the secured loans. You have the freedom of refinancing the house or taking out a mortgage or getting home equity credit lines. You can make use of various other assets for taking out a loan. It is true that you can use these but it is also crucial to have knowledge if they are the ideal options for you.
Benefits associated with consolidation with the secured loans
Secured loans are known to carry low rates of interest in comparison to the unsecured loans so that they are capable of saving money on the interest payments. A low rate of interest is not only going to lower your monthly payment but it is also going to make it more affordable. At times the payments are also tax deductible. One monthly payment along with a low-interest rate is definitely going to ease the financial burden of the business significantly. Moreover, it is easier to get hold of the secured loans because the risk that they carry for the lenders is low.
Disadvantages associated with secured loans
One of the biggest downsides of consolidating the unsecured loan into a secured loan is that you are putting your property at high risk. If you are unable to pay your loan, you can lose the assets that you have used for securing the loan. Also, the terms of secured loans are longer, and this is something that most of the businesses tend to avoid. You can go through the website of Nationaldebtrelief.com to know more.
Debt consolidation through an unsecured loan
It is true that an unsecured debt consolidation loan is extremely common but they are not easily available to the businesses that require them nowadays. In general, unsecured loans need the borrowers to have a great credit score.
Advantages associated with consolidating with unsecured loans
A big benefit of the unsecured debt consolidation loans is that none of your properties is at risk. It is true that the rate of interest can be high, but it may be less in comparison to what is charged on various balances of credit cards. This helps in lowering the interest burden as well as the burden associated with clearing the loan.
Cons associated with unsecured loans
Unsecured debt consolidation loans cannot be obtained easily especially if your credit score is not sterling. Most of the people who require debt consolidation loans may not qualify. Also, the rates of interest are higher in comparison to the secured loans. This can result in payments, which are not low for making the difference in the financial situation of your business.
Using the options of balance transfer and low-interest credit cards are often considered to be extremely tricky. Chances are that they are associated with transfer fees. Moreover, there can be various rules, which are capable of diminishing the benefits. If you are using your credit card for other things, other charges are capable of generating interest while the payments are applied to your no interest balance.
When you decide to consolidate your business loans, it is true that your business is going to get financial relief. However, as a responsible business owner, it is your duty to consider the various advantages and disadvantages before you take a final decision.
Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA. She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, Social Media. She loves to share her knowledge and Experts tips with her readers.
Sujain ThomasOctober 14, 2019 - 10:18 am
Hi SASI! Thanks for posting an amazing post about Debt Consolidation. All the covered points are really true and I fully agree with you. Disadvantages of Debt Consolidation are eye-opening. But we don’t neglect the number of advantages of Debt Consolidation. In this modern world Debt Consolidation is the perfect way to settle all kinds of Debt. Everyone should follow the steps provided in the post. I have bookmarked the article and hoping if you could post more points regarding debt consolidation loan apart from the above information. Thank you.