Small businesses are known to major issues when it comes to loan repayments. It is quite fine to seek financial help to boost business growth but if you are not careful about paying back your loans, you could encounter a situation where you would end up losing your company or the business you had established with a lot of dedication and hard work. If your business is going down thanks to low profits and high costs, you could consider consolidating your debts as the most effective way of managing your debt. Consolidation of debts has been a common practice for both individuals and businesses when faced with a financial crisis. You could combine multiple loans and different lines of credit into one single principal amount. You could even choose payment options that would certainly be having a lower rate of interest. Consolidation of debts would be beneficial to you in more ways than one. Here are some advantages you would enjoy if you consolidate your debts.
Consolidation of Debts: The Striking Advantages
Your business obviously, would need more and more capital as it expands. You often take business loans for expanding and diversifying your business. Before you actually realize it, you may land up in a financial mess. You may not be able to handle the business debts well. One small business debt may lead to another and so on till things get completely out of control. In such situations, it is better to opt for consolidation of small business debts. Thanks to the consolidation of your diverse business debts, you could:
- Drastically reduce monthly expenses.
- Enhance debt organization by getting rid of multiple loan repayments.
- Interaction with one and only creditor and no more tackling multiple creditors.
- No negative impact on your credit profile.
A Single Creditor
The greatest benefit of debt consolidation is that now you could forget about the hassles of dealing with so many lenders. You simply could now interact and handle only one creditor. The debt payment plan is actually chalked out by a third party after evaluating your debts and they are responsible for dispersing the money to all the concerned creditors. If you are running a small organization, it could get pretty tedious if you have several lines of credit and you need to manage so many bills every single month. By consolidating your debts, you no longer would be harassed by multiple lenders on phone and you would no longer miss any payments.
Reduced Interest Rates
When you consolidate your debts, you would be potentially decreasing the rate of interest for your loans as you would be taking a fresh new loan for repaying the previous loans. This generally comes with a relatively lower rate of interest and works to your advantage as you could pay back the debt faster and quite easily.
Consolidation of Debts: The Disadvantages
You must understand that consolidation of debts is supposed to be an effective and efficient loan repayment option available to you. However, just as every coin has two sides, similarly, this process may have a few disadvantages.
An Extended Loan Term
When you resort to the consolidation of debts, the loan term could get extended. Many debt relief companies are promising better rates but in reality, they are extending your loan payment period. This implies that your installments are bound to be small. However, you end up paying more in terms of interest over a period of time.
Not a Permanent Answer
Consolidation of debts could at best be a temporary answer to your financial problem. It is effective in lowering all your monthly payments or even reducing your interest rates. It pays to alter your current financial habits and strategies in order to effectively boost cash flow.
When you opt for consolidation of debts, make sure that you are indulging in ample research. Check out the credentials of a debt relief company before you enter into any kind of agreement or deals. Examine carefully the loan terms, as well as, the interest rates. Stay away from loans requiring your savings or even your assets as collateral. Stay alert and seek expert, authorized professional assistance to get out of debt without any hassle.
Author Bio: Wallace Irvine is a debt consolidation expert and loan and debt consultant in a private finance firm. He also writes articles for his finance-related blog, where he explores the various facets of budgeting, wealth management, debt and bankruptcy.