Times When ADebt Consolidation Loan Is Right For Finance Management
The success of your business or in your personal life will largely depend on how well you manage the finance of each. There are lots of things to consider for ensuringyour finance is moving on the right track and is maintaining its right health. Especially for your business, there are a lot of aspects and areas that you will have to look after and care for to ensure that your business finance health is just as good as you desired.
- Apart from the budgeting aspect, you will also have to look at the debt factor given the fact that most businesses have a considerable amount of debt at all times. These debts can be those you need to pay to your creditors and suppliers often termed as the ‘bill payable’ on business as well as those that your customers owe you typically termed as ‘bills receivable.’
- You will need to maintain a proper balance between the two as well as ensure that none of these bills, whether it is the bills payable or receivable, are high and beyond your manageable limits. It is only then you will be able to maintain a proper cash flow for your operations and keep your business running.
However, there may be times when you will still need to take out some loan from a bank, a line of credit or any other non-bank financial sources for your business as well as your personal needs. It can be for business or home expansion, purchase of an asset, equipment and appliances, vehicles or any other need. These loans too must be paid on time along with the interest that each of these loans may carry with it.
Remember, there is no other way to avoid such payments until you declare yourself bankrupt or close your business along with it, albeit to some extent. Therefore, when a situation arises when you and your business are surrounded with debts to pay and find your business as well as personal finance crippled, you will have to choose a favorable option out of the many offered by traditional banks as well as organizations such as nationaldebtrelief.com and others that will help you in the following:
- To get rid of your debt
- To carry on with your business as well as
- To prevent your credit score being harmed.
It is only a debt consolidation loan that will provide you with all these benefits, ‘all rolled in one,’ typically, literally and figuratively.
Goodness of debt consolidation
For most businesses as well for individuals who carry multiple debts and find it difficult to stay up to date with their payments a debt consolidation is the most sensible solution and a smartest move to get rid of the overwhelming debt.
- A proper debt consolidation will cutcosts as it will lower down the interest rate on the debts that you carry.
- As a result you will need to pay a reduced amount every month.
- Moreover, it will make your finance management effort much easier with no chance of missing any payment as you will now have to pay only one creditor.
This is because the prime objective of a debt consolidation loan is to reduce the number of creditors but not the total amount outstanding against you or your business.
The suitability factor
However, debt consolidation may not be the right option in many situations and therefore it is important for you to know when this is the right fit for your situation. Here are a few indicators that a small business loan consolidation may be the right choice for you.
High interest multiple loans: If you or your business have current loans that are of low-interest rates, then a debt consolidation is unlikely to bring any benefit. In fact debt consolidation is the best fit for dealing with the loans with higher interest rates.
- The interest factor: A debt consolidation loan will also come with an interest but the rate of it will depend on your qualification factors that include your personal and/or business credit score, annual revenue for the last year, years of stay in the area or being in business. If any one or more of these factors have remained the same or improved since the last time you applied for any loan, it is highly likely that you will get a loan at a better interest rate.
- Short term loan extension: If you have several short term loans that you may want to repay over longer period then a debt consolidation loan is feasible. A single multi-year term loan or one with a longer termthan your current ones will allow you to manage your personal or business finance better and help it to grow as you will get an extended time to realize your ROI.
- Solid credit: If you have a good personal credit then only a debt consolidation is suitable. Low score will result in high interest and shorter tenure and will be of not any help putting you back to the same state. An excellent credit score in this respect is 700+, a good one is over 620. A satisfactory score is 550+ and anything lower is not suitable for a debt consolidation loan.
- Improved finance: For your business, take a loan only if your finance has improved and profitability increased over the last three consecutive months as you may be eligible for lower interest rates on your loans. As for your personal finance you should have highincome, low personal debt, more equity, fewer dependents, and lower household spendingto receive a lower interest rate.
- Lastly and especially for your business make sure that you have passed the one year threshold when you apply for a debt consolidation loan. Longer the time in business better chance to receive a lower interest rate on a business debt consolidation loan. It will reveal the financial histories, proof of profitability and your success to take you a long way.
However, keep in mind, debt consolidation can create a dangerous and expensivecycle. Make sure that you have enough resource to repay it in full.